The pinch of delayed payments is fresh in the minds of suppliers. Hoping they get their payments on time and the impact of facing a delay can severely disrupt the supply chain process. 

The consequences of delayed payments can harm a business’s reputation, lead to no clarity on company finances, strain on relationships with suppliers, and less favorable pricing terms in the future. But why do suppliers increasingly face this issue even though its consequences are highly damaging to business growth? As a top CA firm in Chennai, we’ve come up with eight reasons that lead to delayed payments. We’ll also identify the actionable steps to prevent delayed payments from taking place.

8 Top Reasons Why Suppliers Face Delayed Payments

You want to ensure that your company is not known for delaying payments to suppliers. This can ruin your reputation with the supply chain network and future relationships. Before we can share the solutions, let us first recognise the reasons:

1) Underperforming Sales: It’s possible that the company has not met its targeted sales due to which they could not grow the necessary revenue to pay the supplier. This problem indicates the need to improve sales strategies to generate and improve ROI.

2) Overstocked Displays: Many companies stock up on inventory that exceeds the sales done within a specific timeframe. This is due to projecting unrealistic selling plans that cannot be met on time. This further creates problems like the inventory taking up valuable storage space, reducing cash flow, and increasing the risk of products becoming damaged or outdated.

3) Unplanned Purchases: It is important to purchase from suppliers by taking into account future needs, budget constraints, and current stock levels. Not considering these factors can lead to overspending, wasted resources, and mismatched inventory.

4) Mismatched Inventory: Again, mismatched inventory boils down to poor forecasting of customer demands. The cause can also reflect upon a lack of communication between purchasing and sales, and evolving market trends. All these can lead to a discrepancy between what customers demand and what is in stock.

5) Misallocated Funds: Many companies that we have consulted have faced delayed payments to suppliers because they did not plan their fund allocation wisely. Most often, resources are directed towards assets that are not immediate needs like furniture and equipment. This can limit the resources required in crucial areas like paying suppliers on time. Therefore, careful attention needs to be made regarding fund allocation.

6) Cash Flow Mismanagement: Many times, incoming revenue and its use are not effectively planned and prioritized. This can lead to insufficient funds to cover expenses, including paying suppliers.

7) No Supplier Limits: Some of our clients had failed to set established control or an agreement on the quantity of products purchased from the supplier. As a result, companies may receive more inventory than required, leading to overstocking, and cash flow issues.

8) Excess Supply: Similar to not establishing supply limits, suppliers may also deliver more products than were originally ordered. Typically, the reasons are errors in processing, miscommunication, or promotional orders with unexpected volumes. 

Three Actionable Steps To Ensure Paying Suppliers On Time

Based on the eight reasons above, we have narrowed down the solutions to three actionable steps to make sure suppliers are paid on time:

1) Streamline Purchases: Optimise your purchasing processes in the following ways:

-Establish clear purchasing guidelines and approval workflows

-Negotiate better payment terms with suppliers, if possible

-Consolidate and shortlist suppliers to reduce the number of invoices and streamline payments

-Assess your purchasing history to identify areas where you can reduce costs and avoid impulse buying

2) Understand Your Customers: Develop a clear understanding of customer demands to forecast sales and inventory needs:

-Conduct market research and customer surveys regularly to understand buying trends

-Analyze past sales data to understand seasonal fluctuations to plan inventory wisely

-Improve the line of communications between sales and marketing teams to receive better insights into customer preferences

3) Plan Your Cash Flow Wisely: Make sure to plan your cash flow in the following ways:

-Create a cash flow forecast to project incoming and outgoing funds

-Prioritise payments based on important due dates and penalties for late payment

-Use accounts payable automation software to streamline invoice processing and payments

By helping our clients implement these steps through our business finance consulting services, they have managed to avoid delayed payments with suppliers.