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Seven tips for a happier financial supply chain

The relationship between supplier and buyer is a delicate balance involving trust and good, transparent practice. On the supplier side, pricing should be fair and up-front, delivery should be accurate, high-quality and on time, while transport also needs to be reliable and efficient. Any breakdowns in the supply chain have consequences further down the line. But it's just as important for the buyers to enable the smooth running of the supply chain – and that means establishing fair, reliable and timely payment terms. Yet this last stage is where the beautiful relationship can all too often turn sour. The UK's supermarket ombudsman recently published a report criticising global retailer Tesco, saying it "knowingly delayed paying money to suppliers in order to improve its own financial position".

CTMFile has already heard from readers about what payment habits are a massive inconvenience to suppliers. The list was long and ranged from “paying a US supplier via a lockbox in Guam” to “demanding payment terms that are against the law”.

So what can suppliers actually do to ensure their goods and services are paid for in the correct manner?

  1. Sales and supplier contracts need to be drawn up carefully with particular attention given to payment terms, with stipulation of the payment method.
  2. Check that all payment terms set out in the sales contract comply with the law.
  3. Payment terms must be emphasised. Discounts for early or on-time payments can help to grease the wheels of the supplier-buyer relationship, while penalties for late payments could also act as an incentive for timely payments.
  4. Try to establish a personal relationship within the larger buying company, so that there is someone accountable for any late or non-payment. This accountability can be established in contractual form at the start of the supplier-buyer relationship or at the earliest opportunity.
  5. For foreign customers, discuss withholding taxes before the contract is signed and ensure you have all the tax forms necessary. Ask the customer to help with this. When withholding tax is deducted unexpectedly at payment, this causes the supplier-buyer relationship to sour.
  6. Suppliers should push their accounts receivable personnel to aggressively chase all due or overdue payments, with daily phone calls and targeting those responsible in the company at executive level.
  7. Involving a trusted bank in the supplier-buyer relationship can help to smooth out any bumps. Supplier financing enables the suppliers to be paid on time, while the buyer also has more working capital to play with.

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