The cost of late payments on wholesale supply companies

According to research by the Federal government, more than a third of Australian small business invoices are paid late, taking an average of 63 days to be paid. 

The cost of late payments to wholesale suppliers impacts your business in a number of ways, including:

• Reducing working capital and cash flow
• The personal cost of increased stress
• Wasting time and resources chasing debts
• Creating greater debt and associated recovery costs
• And, in the most extreme cases, bankruptcy. 

So, as local businesses strive toward their pre-pandemic output, it’s vital to maintain checks and balances, not just for your business, but for the greater supply chain, so that suppliers, industries and economies can repair together without the disruption of late payments.

The effect on working capital and cash flow

The prosperity of a business is best gauged by its cash flow and working capital. While similar, the two terms vary slightly. Working capital is a snapshot of your company’s current financial situation in relation to its assets and liabilities; while cash flow is forward focused, relating to how much cash your business can generate over a specific time, be it monthly or quarterly. When both are healthy, they offer businesses more potential for growth, and peace of mind to weather unexpected expenses in the future.‍

The cost of late payments

Unfortunately for supplier businesses, they’re too often at the mercy of their customers’ success and the knock-on effect of a struggling customer withholding payment can result in severe problems for the supplier. 

Hindered working capital and cash flow can diminish or halt a supplier's ability to pay for resources or staff. In turn, this can cause them to sacrifice things like product quality, forcing the supplier to lose their competitive edge and potentially damage relationships.

Costs in time and resources also accumulate when a business is forced to chase late payments. Companies with an accounts team may absorb the hit better, but smaller operators, who manage their own books may be forced to stop supply until the debt is recovered. This is a double-edged sword that creates new risks like losing customers to the competition.

Alternatively, many business owners will be forced to chase a debt after hours, placing further stress on them and, potentially, their family - eroding important rest and downtime. If the problem becomes too big, it can push a supplier to pass the late payment on to their suppliers, for the cycle to repeat, or force them to extend their own debt with financial organisations. This debt creates further stress on both the business and the owner and, may ultimately lead to the business’s failure.

However, there are ways suppliers can reduce late payments and safeguard their trading to help maintain a healthy business.

Stay ahead of the debtors

So how can small suppliers safeguard themselves? 

As of 2021, the Australian federal government’s Payment Times Reporting Scheme aims to improve payment outcomes for small businesses by creating transparency around the payment practices of larger businesses and government organisations. The Victorian Small Business Commission has some handy tips to get paid on time while the Victorian Government has a step-by-step guide to recovering late payments, with email templates and follow-up contact scripting to help the process.

Of course, preventing late payments is better than chasing them, and using a total order management system can help. A system like TOM allows suppliers and venues to create agreed-upon payment terms, such as paying on a set day from the invoice due date or the day of delivery. This helps streamline payments to be secure and accurate while reducing errors and time spent on reconciliation. It also automates manual tasks which allows suppliers to better monitor their working capital with easier debtor visibility. Ultimately, it offers you advanced yet simple features to help keep your business organised.

While late payments can feel out of a supplier’s hands, there are ways to reduce the risk that will help a supplier’s working capital flourish, streamline operations, maintain relationships with customers and reduce the stress. An order management system like TOM puts the power back in your hands, as a simple, all-in-one business solution. To learn more about TOM and book a demo, contact TOM.