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Managing your Creditors

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If you have established good relationships with your suppliers, most will allow you to delay payment for a while so your business can weather short-term cashflow problems. But ignoring your creditors could put your business at risk.

There are simple steps you can take to help you manage your creditors, and these need to be part of the day-to-day running of your business.

The main thing is to agree everything up front with suppliers, and set out terms in writing.

If you want to negotiate longer payment terms, you may have to pay a little more for the goods. Negotiation can help, but remember - business relationships are most beneficial when both parties are happy.

Make sure you know what will happen at times when you are unable to pay. Is your creditor likely to extend your credit or will they put you 'on stop' ?

Identify your key creditors: those which have the biggest impact on your business (eg your bank or main supplier); those which might be inflexible (eg the ATO); and those whose services are not immediately available elsewhere (perhaps your IT-support supplier). Then work out the best tactics for dealing with each.

Form a good relationship with suppliers by being clear in your dealings with them. Find out what their requirements are and then keep to the agreement that you've made. Paying on time does help!"

If you know you cannot pay all your creditors at a given time, prioritise those which are most important to your business and then talk to the others. Communication is key. Explain your exact circumstances and reassure them that it is a temporary problem. This is the best hope you have of suppliers helping you in the short term to keep your long-term business.

Avoid delaying payments when it isn't necessary - however tempting this might be. Although, in practice, business credit tends to be interest-free, suppliers have a right to charge interest on late payments.

Don’t be enticed by other tactics. Common mistakes include ;

  • hoping that unpaid bills will 'go away';
  • not having a good system in place to clear disputes quickly;
  • not agreeing payment terms at the outset;
  • and simply not engaging with the creditor.

Friendly, efficient, open business relationships benefit both parties.

If you are regularly unable to pay your suppliers, it is likely to be because you are managing your cashflow badly. If you are in severe financial difficulties, seek our advice immediately.

PS Make sure you always pay your accountant on time because you "always want to stay on the right side of them".

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