Free up cashflow through improved payment term management

If an invoice doesn’t correspond to an active contract, companies should rigorously apply their pre-established default payment terms. It may come as a surprise, but in numerous organizations, these standard payment terms aren’t always strictly enforced for non-contracted invoices. This oversight isn’t necessarily due to a lapse in communication; rather, it often stems from a combination of factors.

For one, there might be a limited understanding of the financial repercussions associated with early payments. Expedited payments, while seemingly efficient, can inadvertently lead to liquidity constraints or lost opportunities to utilize funds in more profitable avenues. These nuances, although subtle, can significantly impact the company’s cash flow and working capital.

Another commonly encountered challenge is the decentralized nature of approval rights. In some enterprises, authorization for payments is distributed across departments or hierarchies. This decentralization, while fostering autonomy, can sometimes sidestep the stringent compliance-driven payment processes typically present within the finance department.

To address these challenges, organizations should emphasize comprehensive training for all stakeholders involved in the payment process. This not only ensures that the financial implications of payment decisions are well-understood but also fosters a culture of uniformity. By aligning payment practices with organizational best practices, companies can optimize their financial operations, ensuring liquidity, consistency, and fostering trust with their suppliers.

See our top 20 free advice for rapidly reducing supplier costs