How to Prevent Late Payments for Your Purchase Orders
There are several different scenarios that could put your supply chain at risk of an order delay. In our recent report, The Top 5 Supply Chain Delays of 2020, the number one reason for an order delay was caused by late payments. This particular delay caused orders to be delayed on average by an astounding 23 days, nearly a whole month. While this statistic could be surprising to some, paying for orders is a common task that’s required for every purchase order (PO). Therefore, the process to make a payment can and should be built into your supply chain process to avoid any future disruptions.
In this blog post, we’ll discuss ways to pay your invoices on time, every time.
Step 1: Understand your Payment Terms
Depending on the health of your supplier relationships, you may have payment terms that vary from supplier to supplier. Therefore, it’s important to set up and know what the payment terms are when you issue your PO.
For first-ever production runs, upfront payments are commonly required so the supplier knows you are serious about the order. The required deposit is usually a percentage of the overall PO that is due prior to production commencing. This payment term could change as you grow your relationship with the supplier, but depending on how well you adhere to the deposit can dictate how your payment terms change over time.
Balances Due Upon Shipping
Typically, suppliers will require payment of an order prior to the goods leaving their facility. When the goods are ready to ship, the supplier may not release the goods to your forwarder or carrier if the invoice is not paid in full. Knowing the date goods are going to ship can help you ensure payment is made prior.
Net X Payments
In some cases, you may have worked out favorable payment terms to pay for orders several days after the invoice is received. For example, when you see Net 30 or Net 15 on your invoice, this indicates how many days you have to make a payment, once the invoice is received.
Understand and stay on top of required payments and their due dates when you issue the PO so you can facilitate timely payments when needed.
Step 2: Coordinate with Accounts Payable Team
If you don’t already know who’s responsible for paying the bills at your organization, make sure you get their contact information because you’ll need to build a tight partnership with them to be successful in your role.
Some companies have a payment schedule that allows their accounts payable team to make payments every Thursday, for example. However, if this schedule doesn’t correspond with when invoices are due, you’ll need a workaround for this. Try going through the appropriate approvals to issue the payment.
Approvals for Payments
Send invoices to the right person, billing email address, or payment system that your company uses to house invoices. Knowing who is authorized to approve and issue payments can also prevent late payments as these individuals have built-in processes to monitor the company’s cash flow. Should your PO require additional approvals for payments, it’s important to bake this into your process.
Every time you issue a PO, you know an invoice will follow. While you won’t have the exact quantities with +/- tolerances, you will certainly have an idea of what is due on the proforma invoice based on the PO. It doesn’t hurt to give your accounting team a heads up with the estimated dollar amount due and target completion date, even if you don’t have the invoice in hand yet. This will reduce unwanted surprises and allows your colleague to maintain cash flow for this invoice as they issue payments for other teams.
Step 3: Create Accountability in Your Supply Chain
Every invoice received should correspond to a PO issued. Centralizing this information for your accountant makes it easier and faster for them to pay invoices in a timely manner. You can do this manually by pairing the appropriate PO and related invoice with your payment request. Alternatively, to drive greater accountability in your supply chain, try this with Anvyl Tasks.
As shown below, Anvyl Tasks lets you house the files, messages, and assignment due dates to your colleagues. The platform automatically sends a task assignment and due date reminder email to those associated with the task. This makes it much easier to keep track of all your upcoming payments based on POs scheduled to ship soon.
To learn more about how to set up greater accountability and prevent late payments in your supply chain, watch the recorded webinar that highlights solutions for the Top 5 supply chain delays of 2020 or connect with a specialist today.
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