What to do if you can’t meet payment deadlines

I was recently approached and asked to write a blog about being on the other side of the equation. Rather than chasing to be paid on time, how to pay people on time and what to do if you can’t meet payment deadlines?

confised personSo let’s say, you’re a shop owner who doesn’t always have the funds to meet a 30 day term agreement with your suppliers. You need to know how you come to a sensible agreement with your suppliers and are there ways to prevent this scenario from escalating out of control.

1 – Don’t put payments on your credit card.
If you are constantly receiving calls or reminders from suppliers that you need to make a payment, putting it on a credit card is a slippery slope.
All you are doing is shifting the problem from having to pay your supplier to having to pay off your credit card and the interest on your credit card is probably substantially higher than your supplier would charge!

2 – Be Proactive
All businesses understand that cash flow is an uneven graph, I’ve not yet met a business that has an absolute guaranteed income weekly or monthly and can tell you 30 – 60 days in advance what that amount will be.
Call your supplier as soon as you receive the invoice (don’t wait until the due date, or worse after the due date) and explain to them you may not be able to settle in full or on time. Businesses will appreciate your honesty and understand.

3 – Communication is the Key
If you take charge and be the first one to make the call, before the credit control department or supplier owner calls you, you are in the strong position.
You have helped them with their cash flow since they are now aware you will not be paying everything in one go, so they can account for that in their cash flow and their expectations of when they can pay their suppliers.
Even if the delay is just a few days, call them and explain your payment may be delayed.

I would recommend that it is better, easier and builds stronger relationships if you set your suppliers expectations later than you actually plan to pay them. Explaining your payment is going to be (say) 14 days late, but then call them after 7 days saying you’ve had a bonus sale/commission and would like to settle the outstanding amount earlier than expected, and would that be OK?
Who will say “NO” to that question? By asking that, you are making them realise that you’re aware they are still owed money, giving the impression you don’t like being a late payer and next time if you ask for longer to pay, they are more likely to say “Yes” since you paid earlier than they expected last time.

4 – Payment plans benefit both businesses
If the bill is larger than you expected (or HMRCs Bill was it reduces the cash you had assigned for the supplier), ask them to set up a payment plan.
I’ve yet to meet a supplier who would rather have no money at the right time and cause themselves legal fees, over one that would allow a longer term with regular payments to settle the outstanding amount, providing you meet the payment plan you agreed.
Always put the payment plan in writing, if they don’t send it to you, send them an email confirming your conversation – that way if they decide to go back on the agreed plan you can prove they accepted it.

5 – Negotiate longer payment terms, you don’t have to accept theirs.
So many businesses think they have to accept the terms a supplier is offering them. In a few instances, this is the case but only for really large corporations or government departments. If you are trading with any other type of business, then negotiate terms which YOU can stick to.

6 – Start building a savings account.
If you save a portion of every penny you earn, and your life and work options improve.
I know this can sound easier said than done, but if you save 5pence in every pound you receive, with an average taking of £10,000 you would be saving £500.
I call this my “rainy day pot” I’m a stickler for not spending money and it really does have to be desperate for me to dip into this pot, but I sleep better knowing it is there and growing every time I get paid.

7 – Look at alternative ways to generate revenue.
If you own a shop selling boutique brands, you have the relationship with the creator and the customer. The creator only has the relationship with you. Use this to your advantage.
Speak to them about taking commissions on their behalf – you make the sale (with your 25% or whatever profit margin on the top) taking a deposit of say 50% since it is a bespoke item, then pass on the details to the creator. Once the piece is made you ask the creator to invoice you (giving you an extra 30 days to pay them) and you get the final 50% from the customer at time of sale.
I would expect these pieces to be charged at a higher price and since it wasn’t in your original plan – add it to your Rainy Day Fund.

I hope this has helped you see there are many ways you work with suppliers to build trust and the relationships even if you can’t always pay them on time.

If you would like any further advice then please don’t hesitate to contact me.

 

 

 

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