Early Payments: Buyer and Seller Benefits
According to Concur’s Supplier Invoice Benchmark Report, in normal periods with little to no disruption and relatively fertile supply chains, almost eight in ten (78%) of accounts payable departments admitted to paying invoices late. Now let’s add some economic pressure and additional strain on the supply chain. Today, the stakes are much higher.
The current global trade landscape has introduced new pain paints to supply chains across the world. Many small businesses are experiencing a cash flow crunch due to historically high consumer demand. Others are experiencing tied up capital that is stuck in transit. Companies are looking for creative ways to unlock working capital that is trapped in the supply chain.
One solution to ease cash flow pressure is early payments. At first glance, this may sound contrary to the goal to free up cash; but, nevertheless, early payments can provide security which has become an increasingly scare commodity in today’s shifting landscape. Early payments remove the panic and uncertainty of the financial unknown; unsure when and if there is capital coming down the pipeline. Both Buyers and Sellers can benefit from Early payments. Here’s how:
Buyers
From a top line perspective, it may seem strange that early payments could help Buyers manage cash flow better. But, there are many advantages to paying suppliers early. The most common benefit we have seen with early payment are the discounts! Discounts usually average between the 1.5 - 2.5% range, but they are certainly not limited to that range. A discount can truly help manage cash and save especially on some of your larger invoices where savings can be upwards of thousands of dollars. Early payment discounts enable you to lower your costs of goods sold while growing your margins.
Another benefit which will seem more natural is the benefit of a healthy, prosperous relationship with your supplier. Early payment alleviates any tension that may have existed prior to early or on time payment due to late or fluctuating invoice payments. A Supplier Sentiment Survey by Taulia discovered that 39% of suppliers are paid late by their customers and 62% of suppliers want to be experience early payment. Early payment can make a world of difference in supplier relations and transform communication for the better.
Sellers
The list of benefits for early payment for Sellers may run a bit longer than the benefits list for Buyers. Maybe it’s because the main benefit of early payment for Sellers is that Sellers receive early payment? Payment may be less than full price; however, that cash can go a long way for a Seller looking to cut days sales outstanding and to pay off their own suppliers. In today’s volatile economy, that cash flow can be the true lifeblood keeping operations running and business afloat despite unprecedented and compounding uncertainty.
With early payment, suppliers can breath a sigh of relief due to a sense of consistency. That consistency can result in peace of mind knowing that invoice payment is a sure thing and ahead of schedule. Reliable liquidity makes business operations a little more smooth and makes the road ahead, no matter the foreseeable and unforeseeable disruptions, a little less bumpy.
Takeaway
Early payments often go forgotten as a tool to increase cash flow without having a negative impact or causing harm to your balance sheet. For both Buyers and Sellers, there is a compelling case to be made of the benefits to reap and the value to be added from early payments. With growing demand for liquidity and timely payment, Buyers and Sellers should explore the benefits of early payment to relieve financial stress and to drive business growth.