Published by Credit Matters Pty Ltd.
Welcome to Credit Matters Newsletter for February 2014. Our monthly newsletter contains information about financial risk management issues, blogs, advice of new business listings and free advice from organisations such as ASIC.
You can always view past copies of our newsletters via our website at www.creditmatters.com.au
This Month's Business Conundrum looks at the concept of customers who slow pay their suppliers because they are short of, or want to conserve their cash. There are a number of business practitioners who advocate this policy as being good business. However, rarely do these same practitioners explain the pros and cons of this practice. Rather they believe preserving cashflow at all costs is more important than paying your suppliers in a timely fashion.
If you are upfront with your suppliers, and request their acceptance of a temporary late payment, this is acceptable. It is just good manners and a normal part of business to let your supplier know if you have a temporary cashflow problem. The acceptance or non-acceptance of your problem is also a good measure of the supplier's willingness to work with your business.
However if you just arbitrarily slow pay your suppliers, there are several problems. Obviously the first is; the risk to your business's financial creditability. The second problem is; instead of clearing a liability when you had the cash, the liability remains in your books. History often shows us Murphy's Law then kicks in and suddenly there are increased demands for your cash.
So you have gone from being able to pay, clear a liability and keep your financial reputation intact, to where you have cashflow problems exceeding your ability to pay your liabilities in a timely manner.
Remember the "... saving cash at all costs?" Well now the costs are starting to add up and you really have to ask yourself "Was slow paying your supplier without asking for their acceptance or because you thought it a "smart business practice", really the best policy?"
Credit Matters provides access to blogs written by Kim Radok. Just go to www.creditmatters.com.au to read these and previous blogs.
Since our last newsletter, we presented the following blogs.
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