When you start working with a supplier, document your agreed terms in a contract that you both sign and can keep a copy of. In the contract, make sure to include:
- what the supplier will provide
- the amount you need to pay
- when you'll need to pay.
It's also a good idea to have a documented dispute resolution process or guidelines for how you'll deal with common problems like late payment or faulty goods.
Being clear on your expectations from the start will help you maintain positive working relationships with your suppliers.
Negotiate payment terms
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 (keep in mind this goes against the Supplier payment code)
- 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.
Review supplier payment terms regularly to help you manage cash flow.
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
Try to pay your suppliers weekly as it's likely to coincide with most account settlement periods – usually every 7, 14, 21 and 30 days.
Pay your suppliers on the due date. Paying before the due date can weaken your cash flow and paying after can damage your supplier relationships.
Supplier payment code
Business Council of Australia (BCA) and the Victorian Government developed the Australian supplier payment code to strengthen the economy by helping businesses improve cash flow.
Any business can voluntarily sign up to abide by the code. By signing up, you agree to:
- pay suppliers promptly and on-time (within 30 days)
- cooperate with suppliers
- help suppliers to improve payment processes
- engage in fair and efficient dispute resolution.
Check your payment 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 that 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 and renegotiate your contracts
Review your supplier's contract every so often – say, yearly. Look for:
- lower prices
- 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.
A good supplier is someone who will work with you – the profitability of your company is in their interests too.
See our tips on finding and choosing suppliers and maintaining your supplier relationships.
Going against your agreed terms
Make sure you communicate with your suppliers at all times, especially if you're going to pay outside of your agreed payment terms. It might be possible for the supplier to reclaim unpaid goods if they've registered with the Personal Property Security Register.
The Personal Property Security Register
The Personal Property Security Register (PPSR) is the official government register of security interests in Australia.
Through the PPSR, suppliers can register their interest in personal property and have protection over those assets until they're fully paid. This means if you're late on payment, suppliers can take back goods that you haven't paid for – including inventory or equipment on hire such as a forklift.
Deal with supplier disputes
If you have a dispute with one of your suppliers, first check the contract or any documents you have to see if:
- they've breached the terms or conditions
- there's a dispute resolution process.
If there is no resolution in the contract or agreement, consider using the following dispute resolution process.
1. Contact your supplier to discuss the problem
Often the supplier isn't aware there's a problem so contact them to discuss the issue first.
Take notes of the conversation and try to negotiate an agreement. Your agreement should include a suitable time frame to resolve the situation.
Once you come to an agreement with your supplier, follow up with a written letter or email outlining everything that you've agreed and make sure you and your supplier sign the document as agreed.
2. Send a letter of complaint
If the supplier refuses to discuss the issue with you or you can't negotiate a resolution, write a letter of complaint.
In your letter, include:
- details of the problem
- references to support your claim (for example, a copy of your purchase order)
- the date of your letter.
Give your supplier a reasonable amount of time to respond to your complaint letter.
If you send a hard copy letter, send it via registered post. This way you'll have a record that they've received it.
If you send an email, mark it as 'read receipt' if you can – this is often found in the tracking or tools function of your email software.
3. Contact the relevant industry association
Next you could contact the relevant association for advice on how to resolve a dispute with one of their members. Most of these bodies have professional standards their members must follow.
For example, if your accountant is a Certified Practising Accountant (CPA) and you feel they've overcharged you, consider contacting CPA Australia. They might be able to recommend ways to resolve the problem.
4. Contact a dispute resolution body
In Victoria, there are several departments that can help with dispute resolution:
- Victorian Small Business Commission (VSBC) promotes a competitive and fair operating environment for small business.
- Victorian Civil and Administrative Tribunal (VCAT) deals with a range of civil disputes.
- Consumer Affairs Victoria can help find out your business rights and responsibilities under Australian consumer law.
Interstate dispute resolution bodies
If you're dealing with interstate suppliers, there are departments in each state of Australia that can help you. For example, see this list of interstate consumer protection agencies on the Australian Competition and Consumer Commission website.
Help from a lawyer or private business
As a last resort, you could seek advice from a lawyer. This can often end up a long and expensive process, so be sure you've tried every other option. Some commercial businesses offer dispute resolution services that might be cheaper than legal costs.