Experiencing growth means understanding how supply chain health directly impacts your profitability.

Not many (if any) industries are immune to the disruption caused by a breakdown in supplier relations, or a change in payment terms.

Supplier relationships get even more complicated as you move up the chain to corporate.

The Financial Review reported that Rio Tinto has proposed doubling of payment terms from 45 to 90 days. Workers, suppliers and contractors in the sector are still affected by long payment times, increasing the need for more secure financing plans to cover these gaps.

When payment terms are pushed out, the task of keeping creditors and suppliers paid on time can be a stretch and cause internal cash flow gaps in operational liquidity. These gaps will likely start out sporadically, then become more consistent as growth continues.

Xero Accounting Software's own internal research showed 47 percent of the invoices issued in the past year were paid late. The findings highlighted that some invoices languished for about 60 days past invoice date before being paid.

Can communication impact payment terms?

Experienced business owners understand that maintaining constant communication with debtors, while balancing payments to suppliers can impact growth.

While most larger customers will have predetermined payment cycles, such as 45 days end-of-month (these can stretch out to 75 days), negotiations with smaller customers to cut down payment times in the meantime can smooth out cash flow. A common way to decrease payment terms is to offer early settlement discounts to buyers; however, it comes at a cost.

Supplier payment discounts can be negotiated for purchases by offering to pay for stock up front, but this only works if you have free cash flow.

Juggling the discounts you are offering versus the discounts you are receiving from suppliers needs careful analysis and monitoring.

You need to ensure you're benefiting from putting these into practice, as obtaining and offering discounts can be inconsistent across the entire supply chain, and could easily result in no profit gain.

Secure financing plans to cover gaps

By establishing a revolving line of credit against customer (debtor) payments, SMBs can have on-demand access to working capital by drawing funds against future invoice payments at affordable rates. Funds can be accessed to take advantage of supplier discounts as required.

Waddle's invoice financing solution is used to strengthen the supply chain and bottom line profits simultaneously.

Funding payment gaps is often highly cost effective compared to offering your own discounts, and helps you avoid the hidden costs of managing the discounts across all customers (debtors).

Waddle's funding program enables SMBs to collaborate with suppliers confidently on payment discounts at a rate that’s acceptable for both parties, and directly provides an additional source of liquidity to SMBs across the whole supply chain.

Get paid upfront & profit from best in class terms

Instead of managing both sides of the chain for discounts, Waddle lets SMBs negotiate terms with pinpoint accuracy on the supplier side.

According to a recent article, 77 per cent of high-growth businesses secure early supplier payment discounts.

For example, drawing down funds against unpaid invoices upfront may cost the business owner X% for 30 days; however, by negotiating a 5%-10% discount on purchases, financing costs are covered by the discount.

The business owner increases profits on the gap between the financing and discounts obtained, and the supplier has been paid up-front for goods or services within the agreed terms. This provides further liquidity down the chain to the supplier helping to maintain a strong, healthy relationship.

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Team Waddle

Just a little pink duck, blogging about invoice finance