Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsManaging Payments to SuppliersThe payments to suppliers will affect your cash fl ow. Often, start-up businesseswill have to pay suppliers in cash on delivery of goods or services, becausethey do not have a trading history. The supplier will not be prepared to providethe goods or services on credit because they are not sure if the business will beprofi table or still operating in the future. Once your business is up and running,there is likely to be some basis to negotiate with your suppliers so that you canpay on credit and have more cash fl ow.Making full use of your payment terms with yoursupplier is effectively an interest free loan. Therefore,it is important to manage your suppliers and thepayments to them in the same way as you managethe other key components of the working capital cycle.Effective management of suppliers and the paymentsto them consists of three key elements:• Supplier selection• Payment terms• Managing relationshipsHINTSetting up goodmanagementprocedures willensure that you getthe most out of yourrelationship withsuppliersThe following checklist will help you review what procedures you may need toimprove your existing supplier procedures:Checklist for Managing Suppliers & Payments to Suppliers1. Supplier SelectionActionPrioritiesDescriptionDetermine your priorities in relation to your suppliers. Is itquality, reliability, returns policy, price, terms, or a combinationof some or all of these factors?DeterminepreferredsuppliersCheckreferencesSelectsupplier(s)Prepare a list of preferred suppliers.Undertake credit and trade reference checks for each supplieron the list.Select supplier(s) based on your priorities and results fromcredit and trade checks.54Chapter 2-5 p22-65 Eng.indd 548/15/11 5:01:58 PM