Pay your invoices on time is a good practice for better credibility. Faster invoice processing helps save money, improves cash-flow, builds better relationships with your vendors, and frees up employees for other tasks. And when you automate, you’ll start noticing some pretty significant improvements right away.
Disadvantages of Not to Pay Invoices on Time
- It weakens your organisation because it harms your reputation;
- It damages your supply sources and strains your relations with suppliers;
- It weakens the economy as a whole because it constricts growth;
- Late payment is often taken as an indication that the buyer is in difficulties. If you create this impression with your suppliers you may find that their terms worsen.
Late payment can also be symptomatic of poor relationships between you and your suppliers.
The way you manage your purchasing/sales relationship is important to your profit margins. A commitment by you to prompt payment can be a powerful aid to better buying; it will certainly produce closer, more co-operative partnerships between your firm and your suppliers.
Large corporations in particular enjoy considerable purchasing power. That power carries responsibility. The flow of cash in the economy begins with large organisations and should cascade, not trickle, down the chain of suppliers.
Paying on agreed terms injects more money into UK industry; existing suppliers are kept healthy; new firms are encouraged to compete in the supply arena; buyers benefit from a wider range of supply sources and the UK economy becomes more competitive in the world market.
Pay Your Invoices on Time Helps Build a Better Business
You can gain in reputation and buying power when you commit to prompt payment
- Suppliers will be keen to work with you.
- You avoid costly late payment charges or compensation claims.
- You save on firefighting and strained relationships.
- You approach suppliers and customers on confident terms and build their confidence in you.
- Your suppliers’ incentive for reliability will enable you to give reliable service to customers and help you to improve your terms.
- Closer cooperation with your suppliers can lead to wider benefits.
- Customers with concern for efficiency and responsibility in business practice will reward your commitment.
Some insight in-to business and why you should pay your invoices on time ?
One in four business failures are a direct result of interruptions to cashflow
90% of business owners say that they would pay their suppliers on time if their customers paid them on time
Over 40% of small to medium sized enterprises would stop doing business with a customer that paid them late
Only one third of PLCs pay their bills within 30 days and over four years there has been no improvement in average payment times of plcs
Government Rules for Late Payment
You can claim interest and debt recovery costs if another business is late paying for goods or a service.
If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either:
- The customer gets the invoice
- You deliver the goods or provide the service (if you don’t pay your invoices on time)
Interest on late commercial payments
The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ – this is 8% plus the Bank of England base rate for business to business transactions. You can’t claim statutory interest if there’s a different rate of interest in a contract.
If your business were owed £1,000 and the Bank of England base rate were 0.5%:
- the annual statutory interest on this would be £85 (1,000 x 0.085 = £85)
- divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)
- after 50 days this would be £11.50 (50 x 0.23 = 11.50)
If you are starting to pay your invoices late due to cash-flow problems Invoice Factoring may be a solution for your business.