Saturday, May 26, 2018

Prompt payment of suppliers

When I run an insurance company, I learned that my finance manager was paying the repair workshops 30 days after rendering their invoice. It was the market practice.

I instructed the manager to pay the workshops immediately on receipt of invoice. This will help their cash flow and reduce their financing cost. Many of these small businesses had to pay high interest rate on their bank overdrafts.

This practice also helped the repair workshops to reduce their administrative expenses. They do not need to employ people to chase for payments or to "build relations" with the finance officers.

The repair workshops were happy to do business with us. They reduced their repair charges to be more competitive. Our practice of prompt payment also benefit us.

I encourage principals to adopt this practice and make prompt payments to their suppliers and contrators.

My sugggestion applies to principals with access to cheap money or idle cash. It does not apply to principals who are also cash strapped.

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