Global recession, supply chain disruption, inflation and erratic demand will continue to place pressure on businesses to improve their cash flow management. A recent UK Dun and Bradstreet annual SME report indicates that late payments have almost doubled since 2019 and invariably these delays are forced down the supply chain without agreement or consideration of any direct and /or indirect consequences.
We know organizations differentiate their customer base and prefer dealing with customers that are stable, consistent and pay on time. Organizations will penalize those customers that fail to meet these ideals – these penalties may not be transparent or explicitly communicated however they exist and will impact the customer negatively.
Examples include:
- Addition of a risk price premium – charges are significantly adjusted to cover the risk of debt, interest and inconvenience when dealing with that customer. This addition increases cost of sales.
- Service disruption – services may not be performed until payment has been made. Cash on delivery or advance payments may be demanded from the customer which actually worsens the organization’s cash flow position.
- Finance charges – Letter of credit or other forms of finance guarantee, and interest payment demands add delays to the process and increase the cost of transaction for the customer.
- Supply assurance – preferred customers will be top of the fulfillment list where capacity and material shortages occur. Knock on delays across the supply base multiples create a domino effect that destroys responsiveness.
Do not negatively impact your reputation by failing to pay on time. Take a considered approach; there are appropriate supply-side strategies that improve cash management, mitigate penalties and improve robustness.
AYSCO CONSULTING 