Late payments affect all parties involved, but none more so than freelancers and smaller businesses that don’t have the cash flow to safeguard against delayed revenue.
The CIPS estimates that “in the UK alone, around £13bn is owed to small businesses in overdue refunds and up to 50,000 businesses are at risk of insolvency every year because they lack the reserves of larger organisations to cover such delays”.
Delaying payment to suppliers is one of the worst things a business can do to another business. The following disadvantages shine a light on just how harmful this can be for
Late payments damage relationships with key suppliers
One of the biggest disadvantages of delaying payment to suppliers is the damage it causes to relationships. In July 2019, Prompt Payment Code signatory British American Tobacco was one of 18 businesses removed from the list after failing to pay vendors on time.
If suppliers have difficulty collecting on invoices, they may find themselves financially hamstrung. One-quarter of all bankruptcies are estimated to be the direct result of returns not being received on time. For businesses, delaying payment to suppliers undermines their own operations because, ultimately, the business itself would suffer should even one supplier disappear.
On the other side of the coin, good supplier relationships that are based on mutual respect and trust raise the bar for everyone involved.
Late payments can cause reputational damage
Forging strong working relationships with external parties is an effective way to achieve business growth and longevity. If you don’t respect that your suppliers have liquidity considerations of their own, then you risk self-inflicted reputational damage, severing the connections you’ve built up over the years.
A bad reputation has significant repercussions. If suppliers catch wind of a reputation for delaying payments, basic survival may become more pressing than ‘business as usual’.
With profitability and goals inextricably linked, the client–supplier relationship is an essential component that supports a business’s competitiveness and operational efficiency. Therefore, paying invoices promptly avoids potential tensions and nurtures healthier — more profitable — working relationships with suppliers.
Places undue stress on employees and customer service departments
Low employee morale and high stress levels are two significant disadvantages of delaying payment to suppliers. When the business is at fault and payments are late, customer service agents have to undertake ‘damage control’, commencing sensitive discussions that could have potentially disastrous consequences if the talks go sour.
Furthermore, bottlenecks caused by late payments can seriously hamper a business’s accountancy department. An overburdened team can have knock-on effects that lead to further late payments. This stressful way of working puts accountants on the backfoot and leads to low-quality output and — eventually — employee burnout.
The disadvantages of delaying payment to suppliers are clear. Surely, then, there must be a solution that streamlines processes and ensures that deadlines are met?
AP automation: removing manual admin from the accounting equation
P2P process costs account for an average of 60% of turnover for most companies. Thus, organisations must be able to meet the demands of their clients. Paying suppliers on time to grease the wheels of commerce plays an integral role in keeping distribution healthy and clients happy.
For this reason, your Accounts Payable department needs to be a well-oiled machine that’s empowered by streamlined processes.
AP automation technology offers that solution.
Beyond immediate time savings, supplier process automation significantly lowers invoice duplicates and data entry mistakes. By reducing expenditure and improving management, a business can increase the value of employees by shifting them over to more strategic tasks. From PO and invoicing to archiving and storage, a digitalised P2P process gives all supplier and business stakeholders the tools to increase visibility, quality and efficiency.
Today, we see companies turn to AP automation platforms for cost-efficient, streamlined accountancy operations that deliver payments on time. The software is accessible to all and can deliver a rapid, measurable ROI.
But with new and exciting tools comes a learning curve. Thankfully, there are experienced partners in the AP automation market that are ready to share insights and offer guidance.
To avoid the potentially damaging disadvantages of delaying payment to suppliers, you need more than a piece of software. You need an AP automation specialist who understands the complex relationships between suppliers and clients, as well as how automation can strengthen these connections.
Manual processes count for over 30% of AP costs and seriously put your company at risk (late payment, long invoice approval time...)In this webinar replay, find out about the next generation of AP automation that makes high-performance technology accessible for all.