Cash Flow and Payment Terms

Cash flow is the lifeblood of any organisation. Companies in the private sector generally focus on increasing profits, but it is inadequate cash flows that can cause serious financial difficulties. With increased fuel and food prices and predictions of a US recession, never has there been a more important time to track cash flow. As value protectors and risk managers, this is a key role for the procurement function. Cash flow is a major concern to SMEs and often threatens commercial survival. Several large retailers in the UK have recently raised their payment terms to 75 days from the end of the month of invoice, with a further percentage discount for paying within these terms. The impact of this on the rest of the supply chain could be any of the following:
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Vulnerable suppliers in your supply chain; Suppliers covering the cost of late payments into their products or services; Supplier providing a lesser standard or quality of product or service due to having to cut costs; Inflating prices in the supply chain and/or market; Becoming unattractive to suppliers and having fewer responses to tenders or future work; Can create poor buyer-supplier relationships.

Supply Management last month reported that “A study of 1,500 small companies by the Forum of Private Business (FPB) found 88 per cent were not paid on time by their larger customers. The majority of the respondents, 72 per cent, said their standard billing period is 30 days - the legal maximum before a payment is classified as "late". Some 56 per cent said late payment had become worse over the past year. Just under a third were owed between AUS$2,150 and $10,787. Nick Palin, finance and administration director at the FPB, said in a statement: "Supplier abuse appears to be widespread and many smaller firms are in a catch-22 situation, fearing that if they