Developing supplier relationships

Payment practices can indicate how strong or weak your relationship is with your suppliers. You should agree the terms of payment at the start of all supplier contracts and commit to prompt payment practice as part of fostering a good relationship with suppliers.

Impact of late payment to suppliers

The practice of delaying payments to suppliers can be harmful to your business in a number of ways. Potentially, it can:

• damage your business' reputation
• strain your relationship with suppliers
• lead to less favourable terms and pricing in future supplier transactions
• lead to costly late-payment charges or compensation claims
• give the impression that you are in financial difficulties
• restrict the growth of the supplier's business and the economy as a whole

Importance of paying suppliers on time

A commitment to prompt payment is likely to:

• help your relationship with suppliers
• make suppliers keen to work with you
• increase suppliers' confidence in you as a business partner
• enable you to negotiate better deals
• help you avoid late-payment interest charges
• signal sound financial wellbeing

To promote good payment practice, you should:

• agree the terms of payment from the outset
• monitor your payment system - ensure it's flexible enough to meet any different payment terms agreed with suppliers
• pay undisputed bills by their due date
• foster good relations with clients - give them names of critical payment staff and tell them how your payment system works
• agree a system for resolving any payment disputes

You could also put together a payment policy that:

• includes clear instructions on payment of bills
• can be made available to suppliers upon request

Prompt Payment Code

The Prompt Payment Code (PPC) sets standards for fair payment practices. Businesses that sign up to the code agree to:

• pay their suppliers on time
• give clear guidance on payment procedures to suppliers
• encourage good payment practice

Several major banks and business organisations endorse this code. Businesses that successfully sign up to the code can display the PPC logo on their documentation and website as evidence of their good payment practices.