Paying suppliers and contractors promptly yields dividends.
Are you paid on time? Do you pay timeously?
I was shocked the other day to read that a major multi-national mining company had decided they were only going to pay their suppliers and contractors after 90 days. Previously it had been 45 days after being increased from 30 days last year.
Wow, they must be nuts! How incredibly short sighted! Some accountant is only thinking about the short term benefits to their company without considering damages to suppliers and contractors and the long term costs to their own company.
Imagine, some contractor completes work in the first week of April, then, they can only invoice at the end of the month and then then only get paid 90 days after that – at the end of July. In the meantime they have to pay wages (probably in the 2nd or 3rd week of April), salaries (at the end of April), suppliers and equipment providers (sometimes these have to be paid up-front, but at the very latest they’ll be paid at the end of May). In some cases they may even have to pay the tax authorities the GST added to their invoices before they’ve received the money from the customer.
Of course some of the bigger suppliers and contractors will try and force these extended payment terms down the line – to their subcontractors and suppliers. A ripple effect passes through the entire industry.
Who can afford to work under these conditions? Well that’s exactly the problem because few contractors and suppliers can finance their customers. Contractors and suppliers aren’t banks! Ultimately it’s the company that imposes these poor payment conditions who’ll be paying for them.
The dangers of paying your contractors and suppliers late
We’ve always tried to look after our subcontractors and suppliers. Sure we were tough on them and deducted money when we had to do some of their work. We withheld money when they didn’t perform. But this was always within the terms of the contract and was never done because we wanted to make money at their expense. Unfortunately, we did on occasion make mistakes and pay the odd contractor later than we should have. However, subcontractors and suppliers knew they got a better deal working for us than with most other contractors. They wanted to work on our projects. They helped us win projects by providing keen prices. They gave us their best teams. Together with our subcontractors and suppliers we were a winning team.
What do you think of customers who have lengthy payment terms or delay paying for work done? Are you more loyal to customers who pay you promptly – helping and supporting them? Do you pay your suppliers and subcontractors on time?
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The opinions expressed in the attached articles are those of the writer. It should be noted that projects are varied and different laws and restrictions apply which depend on the location of the contractor and the project. It's important that the reader uses the supplied information taking cognisance of their particular circumstances. The writer assumes no responsibility or liability for any loss of any kind arising from the reader using the information or advice contained herein.
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