Payment terms with suppliers will vary from industry to industry. Generally, you want as much time as you can get to pay suppliers. Money is better in your pocket than the supplier's as far as cash flow is concerned.
However, a balance needs to be struck. Pushing for extended payment terms or simply paying invoices late, could be damaging to your relationship with your supplier.
Payment Terms With Suppliers
New businesses will struggle to negotiate more favourable payment terms, as there will be no track history of payments or the amount of trade they will provide. However, as relationships develop with suppliers, with orders placed and invoices paid, the supplier may be prepared to alter payment terms if asked.
Large suppliers may be particularly reluctant to alter payment terms, given the number of customers they may have. You may find a take it or leave it attitude.
A different approach from seeking more generous time for making payment, is to see if there is any incentive to pay quickly or to pay in cash.
EU Regulation Of Payment Terms
In 2013, the UK (and the rest of the EU) were made to implement rules about payment terms between business. A very helpful guide can be found here. In short, the regulation says:
- Maximum payment terms in a contract should be 60 days (or 30 days if payment is by a public body). They can only be more if not "grossly unfair" on the creditor.
- If the contract is silent on payment terms, 30 day payment terms are to apply.
- Interest and late payment compensation is due on any overdue payments. This has already been in place in the UK for many years. The interest must be a minimum of 8%. It is up to the creditor whether it actually imposes this or tries to recover the amounts.