Managing Your Creditors

1. Your Payment Policy

A well thought-out payment policy is a vital part of building a strong and trusting relationship with your suppliers and other creditors.

1.1 For every supplier, work out what your purchasing objectives are.

• The priority is usually reliability, followed by quality, price and then their credit terms.
• Shop around. If you have a choice of good suppliers for a particular product, your supplier may be prepared to extend the credit period to keep your business.
• Agree these objectives with your accounts department, and train them in how to treat your creditors.

1.2 Set out a general policy on payment and make sure your suppliers understand your payment terms and you understand theirs. For example, you might pay within 30 days of receipt of invoice.

• If you generate cash, like most retailers tend to, you can afford to pay quickly in return for price or settlement discounts.
• Write down your terms of trade and ask any new supplier to agree them by signing and returning them. If the supplier's terms of trade conflict with yours, come to a (written) agreement before you order.

1.3 Allow for some flexibility.

• Be prepared to trade off credit in return for other concessions (or vice versa) from your suppliers.
• Some suppliers operate on a cash-up-front basis, or require a deposit.

1.4 Communicate the benefits to your suppliers, so they support you in the future.

• If you pay promptly, your suppliers should expect to do you a favour in return when you need one.
• If you negotiate extra credit, show the suppliers what they get in return.

1.5 Review your terms regularly.

• Check whether other suppliers would offer better terms. If they would, ask your existing suppliers to improve theirs.