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Setting payment terms with suppliers

Manage supplier payments and have a dispute resolution process to keep your finances healthy

On this page

  • Review payment terms to save money
  • Check your accounting systems
  • How to deal 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 – for example, 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.

Pay your suppliers regularly 

  • Weekly is a good choice to pay your suppliers – it's likely to coincide with common seven 14, 21 and 30 day account settlement periods.
  • Pay your suppliers on the due date – not before, not after.

* Supplier Payment Code

When dealing with small business suppliers, the Victorian Government and Business Council of Australia encourage payment on time and within 30 days of receiving a correct invoice. The Supplier Payment Code provides five payment policies and practices to which signatories commit in order to ensure small businesses have a reliable cash flow and working capital.

Any business, not-for-profit or government organisation can sign up to the Supplier Payment Code at any time.

Check your systems

Set up your accounting systems so only you can change payment dates. Make sure there are good controls in place so your suppliers aren't:

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

Review your supplier's contract every so often – say yearly – and look for:

  • lower prices
  • discounts
  • just-in-time delivery, for example order closer to the time you need the stock
  • removing any incremental pricing included, such as bulk price advantages.

Here's a tip: a good supplier is someone who will work with you – the profitability of your company is in their interests too. 

Use our handy Finding and choosing suppliers checklist to manage your supplier relationship.

The Personal Property Security Register

Be careful – 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're late making payment to a supplier who's 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've breached any of the terms or conditions
  • the documents to see 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 your supplier to discuss the problem 

Often the supplier isn't aware there's a problem. 

Take notes of the conversation and try to negotiate an agreement, which should include a suitable timeframe to resolve the situation.

Once you come to an agreement with your supplier, follow up with a written letter or email outlining everything that's been agreed upon and make sure you, and your supplier sign the document as agreed.

2. Send a letter of complaint 

If you're unsuccessful in negotiating a resolution – or the supplier refuses to discuss the issue with you – write a letter of complaint. 

In your letter of complaint, include details of the problem and any references, or copies of documents to support your claim. For example, if they're refusing to replace faulty goods – provide your purchase order. 

Make sure you include the date in your letter and give your supplier a reasonable amount of time to respond. You could send the letter via registered post, so you have a record that they've 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 Practising Accountant (CPA) and you feel they've overcharged you, consider contacting CPA Australia – 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:

  1. Victorian Small Business Commission (VSBC) – dedicated to promoting a competitive and fair operating environment for small business.
  2. Victorian Civil and Administrative Tribunal (VCAT) – a one-stop shop dealing with a range of civil disputes.
  3. Consumer Affairs Victoria – assist in finding out your business rights and responsibilities under Australian consumer law.
  4. If you're dealing with interstate suppliers, there are a number of departments in each state of Australia that can assist you.

And only as a last option – as it often ends up a very lengthy and costly exercise – seek advice from a lawyer . 

Here's a tip: there are commercial businesses that offer dispute resolution services that may be cheaper than legal costs.

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