Why you should pay your invoices on time

Little red alarm clock

Late payment is becoming an epidemic that is threatening the future of many small and medium sized organisations Australia wide. Australia often sees itself as an egalitarian society, the land of the fair go – well where is the fairness in not paying supplier invoices in a timely manner!

Many small and medium organisations have noticed a slowing of payments from their suppliers or in some cases no payment at all!

This is a problem for companies, even those with proper debt control procedures in place or where negotiated payment terms have been agreed.

I am not talking about companies who provide a bad service or where there are issues with the work carried out – so not disputed invoices.

No, I am talking about companies just not paying in a sensible period of time or not paying at all.

Obviously it is unethical, but the practice of deliberately paying later than the agreed terms has a number of implications on your organisation and the economy as a whole:

  • It weakens your organisation because it harms your reputation.
  • Damage is done to your supply sources and strains your relations with suppliers.
  • It weakens the Australian economy as a whole because it constricts growth.
  • Slow or late payment is often taken as an indication that the buyer is in difficulties. You need to think about the impression are you creating with your suppliers and ask if it is helping you in the long term.

Through my own organisation and friends with businesses there seems to be a number of scenarios, but here are just three common issues:

  • Some larger companies will often sit on invoices to enhance their cash flow in difficult times, extending their credit terms well past the magical 60 day credit terms – 120 days is not uncommon
  • Some dubious companies feel they can avoid payment altogether by not having a formal purchase order processing system or registering the invoice in their accounting solutions, they just sit the invoices in a bottom drawer. Therefore once the supplier gives up because the debt is too costly to chase through legal channels it has bolstered their bottom line. What are their external auditors doing? This is not uncommon practice!
  • Or the company runs into financial difficulty and stops all lines of communication. Stop it! Speak to your suppliers and negotiate a payment plan!

This type of behaviour has to stop and using another organisation as your bank is immoral.

It is worth pointing out that it is not just large companies guilty of this (many have excellent payment records for quality work) but any size of organisation, including Government departments. I have a friend who does work for Federal and State government and has to wait up to six months to get paid.

So is it a problem? – You can bet your business it is!

The solution is a difficult one. Looking to the overseas market for ideas to copy we can see the UK has a non compulsory Prompt Payment code which appears to be failing.

If we look at Europe and America there seems to be the same loose woolly approach.

Perhaps it is up to the Australian Government to put something in place to protect organisations from this unethical behaviour?

But then how long would we have to wait?

I think the idea of a compulsory charter, with maximum invoice payments dates of 60 days, is a good idea.

Also the scrutiny of external auditors in ensuring companies don’t simply bin invoices for excellent services provided and suppliers simply give up the fight!

Perhaps an anonymous name and shame of companies that have a bad payment history and typical behaviours as this would surely help build a pattern of the dodgy suppliers in Australia.

One thing is for certain, and that is that this type of behaviour cannot persist or we will continue to see small, medium and large organisations go out of business through no fault of their own.

It is unpardonable behaviour and a cycle that has to stop.