How controlling your supplier payments can unlock cash flow

By Colin O’Flaherty, VP and General Manager UK, Global Commercial Services, American Express
Every business relies on healthy cash flow to stay afloat and grow. Generati...

Every business relies on healthy cash flow to stay afloat and grow.

Generating positive cash flow continues to be a challenge for many businesses. Recent research conducted by American Express found that almost 30% of SME leaders in the manufacturing sector think that getting access to funds to drive is difficult. We have found that many companies find it difficult to forecast cash flow accurately. The result is that this often leads businesses to deprioritise plans to invest in and scale their business.

What role does supplier payments play?

For most businesses, supplier payments represent a significant percentage of outgoings. It has been estimated that B2B payments currently represent more than £19trn of total business expenditure worldwide.

This is even more pronounced in the manufacturing sector. The integrated supply chain is vital to day-to-day operations and efficient payments to suppliers can make all the difference when it comes to business success.

As a result, ensuring a healthy strategy for supplier payments is one of the most important elements to facilitate positive cash flow in any manufacturing business. What’s more, good supplier payment practices are also essential for helping manufacturing businesses negotiate with suppliers – a must-have in a sector built on collaboration and partnerships.

Challenging the status quo

Despite some innovation in supplier payments in recent years, many businesses still use old-fashioned payments systems and single funding sources.

These systems can inhibit growth with inflexible payment solutions, where businesses experience interruption to their supply chain – which can create relationship tension with key suppliers as well as cash flow challenges – and require substantial staff time trying to solve.

For instance, restricted funding solutions can often result in delayed payment; meaning a supplier might find itself in the difficult position of submitting an invoice and being forced to wait for weeks – or even months – for it to be settled by a buyer.

What’s the solution?

Fortunately, there are some fundamental steps that can be taken to help ward against old fashioned payment problems by streamlining supplier payments to keep cash flow positive.

Build transparency

The first step to gaining control of money available in a business is to accurately track and forecast payments and outgoings. Updating a cash flow forecast on a regular basis will provide the clearest possible view of the months ahead and the amount that can be invested in growth strategies.

Create strong relationships with suppliers and customers

It can be easy to allow more immediate pressures to narrow focus down to the short-term. The temptation to insist on longer payment terms with suppliers – or shorter payment terms from buyers – may at times be an almost irresistibly easy way to improve cashflow.


However, unilaterally altering payment terms can create ill-will and resentment between suppliers and customers. Instead, working with partners to agree payment terms and communicating your expectations clearly can help to foster a good working relationship with others in the supply chain and help to prevent problems further down the line.

Undertaking background checks on all suppliers is also a smart idea, as a way of building confidence that they are solvent and can be relied upon.

Tackle late payments

Staying on top of current debtors is vital for positive cash flow.

The most productive way to do this is through incentives, such as encouraging business customers to pay in a timely fashion through the offer of small discounts or more favourable repeat terms. Equally, an agreed and consistent escalation process that chases up any late payments can be useful for preventing cash flow issues impacting your business.

Make it easy

Making supplier payments as easy as possible for customers can encourage faster payment.

Specifically, using diversified funding sources can be faster and easier to process and can remove the risk of delayed payment. They can also enable businesses to hold onto more of their cash for longer whilst also paying suppliers quickly.

There are a number of funding solutions available in the supplier payments space - including innovative ways of using financing solutions for both payables and receivables, cross border payments and short-term financing. Some of these solutions will put both supplier and buyer on to one platform, allowing both parties control of payment timelines. Many also allow users to carry out checks to detect fraud, asking the customer to confirm a transaction via text or push notification if suspicions are raised.

Other tools can reduce billing errors by assigning a single-use account number to each transaction. In these cases, when a supplier charges the virtual account number, the charge is verified against the currency amount and date range pre-set by the buyer. This ensures the transaction data is aligned, reducing the risk of misunderstandings or tension between suppliers and buyers, and making for easier invoice reconciliation.

For companies that offer longer payments terms, for example, food manufacturers, using supply chain financing options could be another smart move to improve cash flow. Supply chain financing means that once an invoice is approved, the supplier is paid by a third party, directly according to the buyer’s instructions. The buyer then holds on to its capital, until it receives a single consolidated invoice from the third party at the end of its billing cycle.

Products of this kind allows businesses to optimise their cash flow by giving them means to pay suppliers while waiting for payment themselves. Again, this helps manufacturers to maintain good relationships with suppliers.

There is no one size fits all solution for streamlining supplier payments, particularly for an industry as diverse as manufacturing. But by taking a step back to analyse the opportunities and putting in place some practical steps, manufacturers can make great strides towards efficiency and growth.



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