Small Business Guide: What can you do when you have a growing order book but can’t pay your supplier?

  • Anil Kanda
  • 24 Apr, 2014

As the recession fades and order books are starting to fill, it is understandable that suppliers are requiring upfront payment. Over the past few years suppliers have been forced to tighten their belts to safeguard themselves against bad debts. Though reasonable, many SME’s do not have the existing working capital to bridge the gap between paying suppliers upfront and waiting 30+ days for customer payment.

Here are a few handy tips to enable business owners to accept larger orders and keep cash flowing:

Negotiate with your supplier

A solid trusting relationship with your supplier is a vital foundation for negotiating a line of credit. Logically, if you have proved that you have a reliable track record and have a lot of repeat business, a supplier may be more open to offering flexible options. However, if you are working with a new supplier it’s harder to demonstrate that you are a dependable customer. Showing a supplier that you have future orders/repeat business is a good start and obtaining positive references from your previous suppliers may add another string to your bow.

Offer customers discount for early payment (and charge for late payments)

Obviously, the quicker your customers pay the better for your cash flow, and offering an incentive for early payment could be a good idea. Alternatively, mounting late payments will threaten the amount of available capital and could ultimately jeopardise a businesses survival; so to minimise risk, its worth including on each invoice that you will exercise the right to charge interest on a late payment (8% + The Bank of England Base rate).

Supplier/ Purchase Order Finance

This type of finance allows a business to pay their supplier upfront and then pay a small percentage fee, only when they have raised and delivered the invoice with their customers. This funding helps a business improve working capital and bridge gaps in cash flow. The prompt upfront payment will inevitably put you in good standing with your supplier, and could entail future discounts and more accommodating credit terms. Ashley Business Finance  has provided this service to many different types of business, allowing companies to fulfil orders as and when they needed it, without the need for long contracts or requiring security from the business owner.