Ah, cash flow. The lifeline and one of the biggest challenges for many small business owners and wholesalers. Keeping that cash flow coming is a key factor is keeping your business healthy - and that means getting your customers to make their payments on time.
Why do retailers take a long time to pay?
The longer a retailer can put off paying their supplier, the more capital they have to invest in other, more immediate aspects of their business. Understandable, but this is also the root of the problem.
Shifting the debt to the supplier still affects the health of the overall supply chain, just in a different place. Increasing payment terms can be a short term solution to a bigger cash flow issue.
From a supplier's perspective, late payments diminish their own cash flow. This can lead to an increase in prices, stricter payment terms for future orders, and weakened relationships with retailers. Overall, it really makes everyone happier when payment terms are met with regularity!
These healthy long term relationships based on trust and on-time payments really increases the efficacy of the entire supply chain.
Late payments from Amazon
Even big eCommerce players like Amazon pay their suppliers late. An article by Bloomberg points out that Amazon has a negative cash conversion cycle (essentially, a measure of the time it takes from the time that your customers pay you, until you have to pay your suppliers), way below that of their competitors.
This isn’t necessarily because Amazon is so efficient, it’s because they draw out their payment terms when it comes to settling bills with their suppliers. With huge companies like Amazon taking their time to pay suppliers, it’s understandable when smaller retailers do it. However, that doesn’t mean that it’s good for overall business.
What can you, as a supplier, do?
While there's only so much you can do to make sure people pay you, here are four things that should make things easier. Try out these tips to see if they help you get paid faster.
1. Issue clear invoices to your customers.
Clear invoices are the first line of defense when it comes to getting paid on time. Invoices should lay out contractual terms, quantities, prices, and payment terms without any doubts. Also, require a proof of receipt on your deliveries to avoid any discussions about when or how the goods were received.
Check out this article for more tips on effective invoicing.
2. Clarify and work out payment terms up front.
Make sure that everyone involved knows exactly what the payment terms and expectations are. Make it clear when and how much is due for every part of the order, and agree on that schedule before any shipments are made.
3. Make it easy for your customers to pay you.
Are you selling on the cloud yet? Switching over to allows you to send Invoices automatically, reducing the time between payments. Also, send out payment due reminders to refresh their memory for when the payment is due. These small steps in efficiency on your side make it easier for the customer to make the payments when it's time.
4. Develop strong relationships with retailers you trust.
As we've covered before, B2B business is all about that relationship.
While it may be tempting to accept each and every order that comes along, if there's not a good relationship with the retailer, some orders can end up doing more harm than good. In the same way that retailers go through a long process to choose you as their wholesaler, make sure you vet your customers.
Show you the money!
Getting paid on time is one of the main issues we hear that wholesalers face when dealing with cash flow and keeping their business afloat.
Let us know in the comments if you’ve come across any new information or techniques for getting paid on time!