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Setting payment terms with suppliers

If you make full use of your terms of trade with your supplier, it's effectively an interest-free loan.

On this page

  • Payment terms to save you money
  • Check your systems
  • Dealing with a disputes

Review payment terms

Review supplier payment terms regularly to help you manage cash flow. When discussing payment terms with suppliers, consider asking them to:

  • extend the payment days from 30 days to 45 to smooth out changes in your cash flow
  • allow you to pay quarterly (companies such as water and power utilities)
  • start the payment term from complete delivery and not part delivery. 

When you have to return goods:

  • make sure the supplier gives you a new invoice 
  • hold disputed invoices over until the supplier issues you a credit note.
Make a regular time to pay your suppliers. Weekly is a good choice as it's likely to coincide with common seven 14, 21 and 30 day account settlement periods. Pay on time (not early or late). 

Check your systems

Ensure your accounting systems have good controls so your suppliers are not:

  • paid early - where accounting packages are used, set the due payment dates to come up automatically. Set it up so only you can change it
  • over paid - check the goods you receive match what you ordered on the original purchase order. Check the totals on the supplier's invoice are correct
  • paid twice - pay only on the supplier's statement, not the invoice.

Review your suppliers contract every so often (say yearly) and look for:

  • lower prices
  • discounts
  • just-in-time delivery e.g. order nearer the time you need the stock
  • removing any incremental pricing included e.g. bulk price advantages.

Remember a good supplier is someone who will work with you. The profitability of your company is in their interests too. Use our handy Checklist: choosing and managing suppliers to manage your supplier relationship.

Watch out! The Personal Property Security Register (PPSR) gives the supplier asset protection until payment. If a supplier registers on the PPSR and they have appropriate supporting documentation, they may be entitled to fully recover goods invoiced and delivered to your business which have not yet been paid for. 

If you are late making payment to a supplier who has registered their interest on the PPSR, the supplier has every right to take possession of any goods which have not yet been paid for (including inventory or equipment on hire such as a forklift). Make sure you communicate with your suppliers at all times, especially if you are going to exceed agreed supplier payment terms. 

Dealing with a dispute

If you have a dispute with one of your suppliers you should first check any documentation or contracts you have to see if they have breached any of the terms or conditions. You should also check the documents if there are any dispute resolution processes. If there are no resolutions available in the contract or agreement, consider using the following process:

1. Contact the supplier and discuss the problem 

Often they are not aware there is a problem. Take notes of the conversation and try to negotiate an agreement.  The agreement should include a suitable timeframe to resolve the situation.  Once you have this, then follow up with a written letter or email outlining everything that has been agreed upon and make sure you and your supplier sign the document as agreed.

2. Send a letter of complaint 

If you are unsuccessful in negotiating a resolution or they will not discuss the issue with you (e.g. they do not return your calls), then write a letter of complaint. Include details of the problem and any references or copies of documents to support your claim. For example, if they are refusing to replace faulty goods, provide your purchase order. Make sure you give your supplier a reasonable amount of time to respond and include the date in the later. Consider sending the letter via registered post, so you have a record that they received it. If you send an email, mark it as ‘read receipt (usually found in the tracking or tools function of your email software).

3. Contact the relevant industry association 

Most of these bodies have professional standards their members must follow. For example, if your accountant is a member of Certified Practicing Accountant (CPA) and you feel they have over charged you, you could contact CPA. They may be able to recommend a number of ways to resolve the problem.

4. Contact a dispute resolution body 

In Victoria, there are a number of departments that can help.

Some of these include:

  • Small Business Commissioner - the VSBC is dedicated to promoting a competitive and fair operating environment for small business
  • Victorian Civil and Administrative Tribunal (VCAT) - one stop shop dealing with a range of disputes
  • Consumer Affairs - assists in finding out your business rights and responsibilities under Australian consumer law
  • there are also a number of departments in each state of Australia if you are dealing with interstate suppliers.
Seek advice from a lawyer as a last option as it often ends up as a very lengthy and costly exercise. There are commercial businesses that offer dispute resolution services that may be cheaper than legal costs. 

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