Q: How do payments impact upon supplier relationships?
A: The relationship with your supplier is key to your business – the better the relationship, the better the business – and it all comes down to payments.
To obtain cash to supply your goods you need to be paid by your customers on a consistent basis. Essentially, you need to be paid on time so you can pay your suppliers on time. However, what often happens is your suppliers want payment early while your customers want to pay late. This often leads to a gap in cashflow.
The way to improve the situation is to reduce this gap and to gain importance with your supplier. You do that by making sure you are a preferred supplier.
Q: How do you become a preferred supplier?
A: One way is to increase the volume of transactions that you put through the supplier, but this carries the risk of your business becoming dependant on a single supplier. However, by using multiple suppliers you add to your workload, as you need to constantly monitor the supplier base to find out which supplier is offering the best terms.
Alternatively, you can look at your payments and use Santander Invoice Finance and Supplier Payments to accelerate your working capital, thereby putting yourself in a position to obtain key supplier status.
Supplier Payments are a way of accelerating payment and gaining a settlement discount from suppliers, thereby obtaining a preferential status with that supplier. If you add Invoice Finance to the mix, you can leverage a percentage of the invoice (up to 85% of outstanding invoices*) to accelerate working capital by 30 or 60 days. You can then use this to either pay your suppliers early or no terms.
It’s all about accelerating cash and using that cash as a positive Corporate Social Responsibility (CSR) step; a means of paying people on time, or no terms.
Q: Can you give an example of how Supplier Payments and Invoice Finance work in practice?
A: A company we financed last year in the North East received a Supplier Payments facility through Santander, which allowed them to pay their suppliers on day two. As a result, they were able to ask for an early settlement discount from the supplier, and that discount effectively became a profit-centre for them. Additionally, because they were paying their suppliers in front of terms, it made them a key buyer and gave them an accelerated status. The supplier liked working with them because they got paid on day two, and they didn’t have to go to their bank to fund their working capital in order to sell to the customer.
Q: Are there any other benefits other than preferred supplier status?
A: Your credit limit with your suppliers sets the limit for your trading. For example, you can take up to £50,000 worth of goods on credit every 30 days, and when you reach your limit your suppliers will ask you to pay down the debt. However, Supplier Payments effectively increase your credit limit. By using your accelerated cash position through Invoice Finance and Supplier Payments, you can pay the supplier just after the goods are supplied rather than at the end of the month. Your supplier then becomes more confident in your ability to pay, and you can order goods up to your credit limit several times within the 30-day period. This is known as ‘turning your credit limit’ and will generate more buying power. And the more buying power you have, the better deals you’ll receive from your supplier.
As a general rule, if you’re paying your suppliers ahead of terms, this will be reported across a number of agencies in the UK and enhance your credit standing.
Q: What are the costs for Invoice Finance and Supplier Payments?
A: The cost of Supplier Payments to a buyer is zero, as the supplier meets the cost of the service. Santander negotiates a discount for early payment with suppliers whereas Invoice Finance has a low service charge per month, with an additional percentage charged on the money borrowed. However, for certain businesses that have the ability to use Invoice Finance and Supplier Payments together, it can end up being a very low cost working capital facility.
The discounts you obtain from suppliers will effectively offset the cost of running an Invoice Finance facility. This gives you the choice to pay people to terms or early, or use their cash to enhance your stock position, recruit new members of staff, increase turnover and margins, or take advantage of bulk ordering.
For more information, please contact your local Santander Relationship Director who will put you in contact with a Supplier Payments or Invoice Finance specialist.
* The remaining value, less a small service fee, is paid when the customer pays.
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