Terms, Paying on Time and The Emergency Fund

When you can, get on terms.  It’s probably one of the best ways of improving a business cash flow. There are 2 ways to get on terms actually – one directly with a supplier, the second via a credit card.  The best option of course is to have terms with a supplier who then charges your credit card – but few businesses will do that.

However, one thing I’ve noticed being on terms is the  number of suppliers who call me up to thank me for paying on time.  I feel it’s just good business practise – but it’s obviously striking enough of a difference that my suppliers are grateful for it.

My personal view is that you should always pay on time, because it gives you leverage.  And leverage is nice when you want to start negotiating for new terms / rates.  It helps you get rid of specific onerous terms because you have given them (at very little cost to yourself) something important to them – payments on time.

A recent example is our web developers.  They asked for payment for hours worked; I said okay.  Initially, they wanted me to pay the 2% fee for a credit card; but I requested they remove that as I was paying on time and they agreed.  And just like that – a 2% savings.  Not a huge amount of money; it’s only $60 or so but it keeps them happy and I’ve still got another 30 or so days to pay off the bill as it all goes on my credit card anyway (and rewards!).

However,  one thing you do need to keep an eye on if you intend to pay everyone on time is your casfhlow.  Specifically, creating an Emergency Fund.  Whether it’s a Line-of-Credit that you can tap (when needed) or actual capital; you should always have an emergency fund for when cashflow is just a little tighter than you expected or some new expense crops up.  Like personal finance, an emergency fund is necessary; important and all too often forgotten.