Ideally, every supplier would like to be paid immediately upon receipt of goods, but we all know that can’t happen. Longer payment terms (for example, Net 90 instead of Net 30) can help your organization maximize profits and improve cash flow management. No matter the size of your business, here’s why payment term enforcement is so important.
Extra time, extra profit
In our data, we found that roughly four out of five invoices don’t align with agreed upon contract. More often than not, what was incorrect was the net payment terms. The contract would list the payment terms as Net 60, but the invoices would be listed as Net 15 or Net 30.
Longer payment terms are ultimately better for your bottom line, and there are advantages to negotiating a longer period to pay a bill. The importance of payment terms is most apparent when looking at large multinational enterprises, who often dictate the terms they’re willing to accept in order to do business. For example, major retailers such as Walmart and Kroger have recently begun enforcing Net 90 terms with their suppliers. Large enterprises such as Anheuser-Busch and Kraft Heinz have insisted on even longer terms, up to Net 120!
Although this difference may sound inconsequential, this can have a huge impact on your organization’s profit maximization. Money has the most value when it’s on your ledger– being able to wait for an extra 30 or 45 days allows your company to maximize profits either via interest, external investments, or internal re-investments. This can especially be true of organizations who work with industries that have massive volumes and gigantic invoices like the aforementioned Anheuser-Busch and Kraft Heinz. Depending on the size of the organization, the difference between paying an invoice a month earlier or a month later can actually translate into potentially hundreds of thousands — if not millions — of dollars.
Better cash flow
Payment terms are also crucial for cash flow management. If you’re in the manufacturing or construction industries, you probably require large early outlays of capital.The extra days will allow your organization to better manage its cash flow and regulate the purchasing of inputs to ensure you have the goods you need. If you’re a packaging supplier for a company with longer payment terms like Anheuser Busch, the purchase of materials, paper, cardboard, adhesives or inks may mean your own payment terms for input suppliers take on greater importance.
AppZen can help ensure your supply chain and cash flow remain uninterrupted, so your organization can maximize its financial flexibility and profitability. AppZen uses AI to understand the invoices you receive, identify the payment terms, and look up the applicable contract to verify that the terms on the invoice match those that you’ve negotiated. By doing so, we allow you to hold your suppliers accountable to the terms you’ve agreed on, allowing you to increase your profitability and better manage your cash flow. Learn more about what AppZen can do for your organization.