Table of Contents

Table of Contents

Significance of Working Capital Management for MSMEs
How SCF is better than other financing options
Why SCF is synonymous to easy financing
How SCF is Transforming MSMEs in B2B Industries
Make your business credit ready through SCF

Transforming Businesses through Timely Vendor Payments in 2023

April 3, 2024
min read

While most of us are well acquainted with the thought “you need to spend money to make money,” how many of us have realized “you need to pay on time to receive on time?”

If you are running a business, you must understand that it is not only about creating goodwill but is more about ensuring that you focus on creating brand value and assisting stakeholders, such as your vendors and customers, grow.

Especially after the pandemic hit the shores and sucked liquidity out, businesses have come under severe pressure to manage their vendor payments better and figure out an optimum credit cycle to improve their cash flow management. 

It is imperative for everyone to understand in 2023 and beyond that, even the smallest of businesses would require timely working capital influx to keep themselves afloat and profitable. So there is a need to streamline supplier payments and devise solutions that bode well for all the parties involved.

This article discusses the importance of timely vendor payments and strategies that optimize your business functions, and help you improve accounts payable in 2023.

Improving Accounts Payable Processes

Big businesses use their leverage to secure a longer credit cycle. It affects the payment capabilities of smaller businesses that then struggle to make timely payments. It causes a spiraling effect on the overall payment ecosystem, causing a plethora of payment-related issues, such as delayed deliveries, that cascade across the board.

Businesses need to realize that they cannot squander opportunities to free up already thin working capital. Optimizing their accounts payable improves vendor relations and adds the much-required liquidity to the overall business. 

While some businesses believe that increasing the payment cycle would bring in the requisite liquidity influx, it is far from the truth. Such practices, if deterrent to the supplier, would lead to erosion in supplier confidence that would impact the way they treat you.

In contrast, if you are paying them timely or in advance, they may even extend you additional benefits, such as cash discounts and rebates. But how do brands ensure they optimize their accounts payable?

It would require a collaborative approach, given that individual departments would struggle if they do it individually. While there is a need to tweak and follow a customized approach for improved vendor management, here are some of the best practices that can get you there –

Inculcating robust governance practices

Adopting a set of robust and automated governance practices, such as timely entry into the accounting system and a strict payment policy, would cut down the risks posed by manual errors. These would also enable improved controls around accounts payable processes and a holistic contract review process. This essentially means that setting up the basic rules properly contributes towards better accounts payable handling.

Centralized accounts payable processing and reporting

If you want to improve supply chain finance, you need to move away from a decentralized approach. Instead, setting up a centralized and shared system across the organization and enabling your workforce to adopt it seamlessly would help remove the clutter and bring about improved clarity. It would streamline the time required for completing a plethora of tasks related to vendor payments and management while cutting down the resources required.

Setting up automated management workflows

Management workflows are integral in assisting organizations be proactive and resolve issues that act as hindrances throughout the supply chain. But manual workflows feel dated and often suffer from the usual bottlenecks we associate with manual operations. 

Instead, setting up automated management workflows support in removing the liquidity issue by allowing technology to handle the monotonous and less-critical tasks on their own. It would enable your workforce to focus on the more critical aspects of vendor payments and ensure they handle everything with greater assertiveness and clarity.

Depending on the level of automation you choose, you can set up automatic, timely reminders to vendors to share their invoices. In addition, you can opt for more specialized software to generate purchase orders against each new order, scan invoices automatically, and track delivery receipts. All of it would eliminate irregularities and help optimize your supply chain finance and, thereby, your cash flow.

Why should you make timely payments to your suppliers?

As per The Friction Index developed by Tungsten, large organizations secured a friction score of 99.7. In comparison, smaller companies recorded a lower score of 96.3 in the same parameter. These numbers show that larger businesses are more likely to face supply chain laggards. Also, it establishes a fact clearly and firmly — that you will lose business if you delay payments, irrespective of the size of the organization.

The modern-day business runs more on execution than trust. Gone are the days when vendors would be ready to supply you tonnes of material merely on word-of-mouth and good reputation. This also means that delaying supplier payment would have a more significant impact on your business than it did a few years ago.

Vendors are an integral part of every organization’s existence and success. Depending on the business types, they can supply raw material, services, ancillary products, or contracted workforce. Some organizations also take subscription services, custom services, and more for their needs. 

So, given the relations involved, businesses need to keep this stakeholder group happy and ensure timely delivery and cooperation from the other side.

A Use Case:  Increasing Revenue by 45% through Supply Chain Finance Solutions

Namo Traders was faced with liquidity or cash flow difficulty, and as a result, its working capital was stalled. The foremost bottleneck impeding smooth sourcing was a long credit period of 60-90 days. The company was in urgent need of a platform to ensure smooth payments and get access to credit finance. To this end, they adopted Bizongo's vendor financing solution.

Bizongo's PartnerHub platform proved to be of immense value to Namo Traders. It smoothened and regularized on-time payments, quotation submissions to open bid requests, order acceptance, and PO management through a well-defined, robust process. This is how Namo Traders increased its revenue by 45% using Bizongo's digital platforms.

Here are some other reasons why it is an absolute necessity to make timely payments to your vendors —

Reduce supply chain disruption

While it is okay to miss or delay a payment or two, it can cause supply chain disruption and impact the cash flow if it becomes a regular occurrence. Given that the supplier will have to finance and find alternate ways to finance their working capital requirements, it can often delay the dispatch of the following lots or an increased cost owing to financing requirements.

In contrast, if your vendor knows that you can handle the supply chain flow and they can receive timely payments, it can eliminate their insecurities, allowing them to focus on critical tasks. It would also eliminate unwanted bottlenecks and ensure smooth cash flow management for all the parties involved.

Build a relationship based on trust

Paying timely is a great way to show your suppliers that they matter for your business and its success. In addition, if you pay on time, it will establish suppliers’ confidence in you and persuade more companies to seek opportunities to collaborate with you.

It develops relationships built on trust, and vendors would be happy to help you when you face short supply. In addition, the practice of timely payment also gives you a position of strength from where you can command improved delivery times and better services from your suppliers.

Have the upper hand in negotiations

When you delay vendor payments regularly, you also lose the ability to discuss rates and convince them about better deals. On the other hand, if you establish practices based on the value of timely payments, you can have a position of strength from which you can negotiate for better deals and improve the organization’s financial strength.

Reduce chances of disputes

Delayed vendor payments can lead to unwanted disputes. While some can be basic and easily resolved, others might be justified and escalate into huge disruptions. To eliminate these, brands are fast understanding the need for seamless vendor financing and management.

For example, if you have continually delayed the payments for a vendor, they would start feeling the heat and show reluctance in fulfilling a second order for you. It not only affects the partnership but also harms your chances of securing a better deal. 

Let Bizongo help you get rid of supply chain financing woes

Supply chain finance is more than a routine business task. Efficient vendor financing and payments management help brands build trust and symbiotic relationships. These factors help them scale seamlessly without worrying about the supply side. If you can optimize your relationships with suppliers, it would also benefit your customers because you can improve your supply chain, enabling you to meet orders timely, and improve the overall finances.

For that, you would require an able automation partner that can handle your supply chain finances with ease. With Bizongo, you can undertake smarter supply chain processes and streamline vendor payments holistically. We have a proven history of curtailing credit cycles from being redundantly long (60-90 days) to 10-15 days. 

With Bizongo’s supply chain financing platform, you can embark on seamless vendor consolidation, explore discount opportunities, and have an able partner contributing to enhancing your vendor payments schedule.

Click here to simplify your sourcing function with Bizongo.

By signing up, you are indicating that you have read and agree to Bizongo's Terms & Conditions
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form. Refresh and Try again.