Check Supplier Payment Amounts

A good buyer will obtain the best payment terms he or she can that meet the organization’s needs. For example, as long as a firm has sufficient cash, or can obtain it through loans or financing, it is wise to negotiate discounts for early payment. On the other hand, the buyer should try to negotiate a longer required payment due date when the firm has a shortage of cash and perhaps may have nearly exhausted its borrowing power.

But it does little good for the buyer to work hard to negotiate a favorable payment term only to have accounts payable ignore the terms of the agreement. When accounts payable needlessly pays earlier than required, with no incentive to do so, or pays later than required, the company incurs an unnecessary expense.

Normal or most frequently agreed upon business payment terms are Net 30 which means that payment is due within thirty days after delivery. Paying before the thirty days due date wastes the use of the cash which could be drawing interest and earning funds for the business or being used for other profitable business purposes. Paying after the thirty days due date means that payment is late and the company may receive a poor credit rating. Receiving a poor credit rating means the company would be charged a higher rate of interest for any loans required.

The accounts payable function may not always have enough experienced personnel to realize the consequences of paying too early or too late. The buyer can ask for the amount of payment and the date paid to determine if discounts are taken when they should have been, or that payments are not being made beyond the due date. Well- run organizations control this operation carefully to maximize the use of cash.

A buyer may be unaware that payments are being routinely made late. Negotiations with suppliers are more difficult when this is the case. The suppliers are only likely to tell the buyer about late payments when specifically asked about the issue. And of course, the suppliers are seldom going to divulge information about being paid early or when discounts should have been taken, but were not.