Sunday, 11 October 2009
Changing Payment Terms
Most larger companies are always trying to extend their payment terms. eg from 30 days to pay an invoice out ot 60 or even 90 days.
The finance and contracts departments think they are benefiting their company by delaying payment to their suppliers.
In fact this is counter productive.
Most suppliers supply their product to several customers and will prefer to supply to a customer whose terms are as short as possible.
If producers are forced to supply a good at variable terms, the tendency is for suppliers to increase the prices charged to customers with longer terms over customers with shoter terms, giving a competitive advantage to shorter term customers.
For the economy as a whole, lengthy payment terms such as 60 or 90 days is extremely unhealthy since it slows down teh "speed of money" or the rate at which money is circulated in a market
In this modern world, terms should be getting reduced to 14 or even 7 days. Payments can easily be processed properly using computer transactions in less time that this. 30 day terms are an anachronism left over from the 19th century. If trading terms were reduced in the UK economy it would be a massive financial boost to the economy, similar in effect to a 30% reduction in corporation tax.
More to follow- worked example of cash released into economy etc.
For the economy as a whole, lengthy payment terms such as 60 or 90 days is extremely unhealthy since it slows down teh "speed of money" or the rate at which money is circulated in a market
In this modern world, terms should be getting reduced to 14 or even 7 days. Payments can easily be processed properly using computer transactions in less time that this. 30 day terms are an anachronism left over from the 19th century. If trading terms were reduced in the UK economy it would be a massive financial boost to the economy, similar in effect to a 30% reduction in corporation tax.
More to follow- worked example of cash released into economy etc.
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