Across the world, the question of “Should I pay my suppliers as soon as possible or try to delay payments for as long as I can?” is often on the minds of business owners looking to save a few pennies – especially smaller businesses with fewer resources to invest.

While there’s a certain allure to holding onto cash until absolutely necessary, it might not be immediately evident how this can cause more harm than good for your business. Conversely, there are actually a few compelling reasons why prompt payments can be a game-changer to how you operate.

From fostering solid relationships with established suppliers to gaining a general competitive edge in your industry, we’ll explore four key reasons why you should reconsider taking your time with payments.

1. Vendors will love you

As for most relationships in life, trust is the cornerstone for building any sort of longevity. Business relationships are no exception here. Whenever you pay your suppliers promptly, you’re not only demonstrating your reliability but your overall commitment to meeting financial obligations.

This is especially important for any smaller businesses looking to start their first long-term relationship with a vendor. Without a past record of successful partnerships with other vendors, you typically need to do all you can to earn the trust and admiration of a new supplier.

Just imagine being in the shoes of your suppliers. They’ve not only got to juggle multiple customers and manage their own cash flow, but they also need to be sure they’re meeting their own business goals.

This kind of environment usually offers little in the way of stability, so a customer who consistently pays them as soon as possible actually becomes a breath of fresh air.

Essentially, it lets you establish yourself as a reliable partner, someone they can always count on amidst the many other clients they work with. And as such, this trust becomes reciprocated and sets you well on the way towards building and maintaining a relationship.

2. Take priority

Generally speaking, when vendors know they can rely on you to honour your payment commitments, they’re far more likely to prioritise any need you might have as a customer.

For instance, if there are ever times of limited supply or high demand, you may find yourself on the top of the list and receiving preferential treatment over some of the other customers they have that are known for their delayed payments.

Vendors feel more inclined to go the extra mile for a customer that can consistently demonstrates their commitment through timely payments

Whether this comes in the form of fulfilling urgent orders or even providing you with additional services, the fact remains that vendors feel more inclined to go the extra mile for a customer that can consistently demonstrates their commitment through timely payments.

3. Signals financial well-being

Ultimately, when you’re paying suppliers on time, it demonstrates that your organisation is both financially stable and, most importantly, capable of meeting its obligations.

This not only enhances your reputation in the eyes of your suppliers but also positions you as a more attractive prospect for any potential investors or lenders who value strong financial management, which, let’s be honest, are most.

When suppliers work with smaller businesses, one of their largest qualms is that they may lack the consistent cash flow to uphold their end of the bargain. To ease their mind, making prompt payments generally reassures them you’re going to be a trustworthy partner in the long run.

This kind of confidence you instill in them is fairly invaluable, especially when you’re trying to secure favourable terms or negotiate discounts, which should be a top priority for smaller businesses looking to save money.

4. Early payment incentives can add up

As touched on, small businesses should take every opportunity presented to them to reduce costs and increase their overall profitability. Fortunately, one of the easiest ways to do this is by, perhaps counter-intuitively, making prompt payments to your suppliers to take advantage of possible early payment incentives.

Now, not every vendor can offer this sort of thing, but across the world, many suppliers offer early payment discounts to encourage their customers to settle invoices ahead of the agreed payment terms.

These incentives usually vary, but they typically come in the form of a percentage reduction on the total amount due or even a fixed amount off the invoice.

Understandably, these discounts can seem fairly modest if you take them on an individual basis, but they can quickly accumulate over time. For example, a 2% discount on a $10,000 invoice probably appears insubstantial on its own, but over the course of a year, when you’re paying multiple invoices, these can add up to a significant amount.

Once you start taking advantage of early payment incentives consistently, you’ll soon notice that you have the funds to begin reinvesting into your business.

Final thoughts

Ultimately, while we’re keen to be miserly with most aspects of our business, prompt payments to suppliers should certainly not be on that list. Small businesses have to build a footing with vendors somehow, and if it’s not from a previously established reputation, make it about how easy and stress-free you are to work with as a client – it will go a long way.