Movement for change Pay suppliers promptly to save cost
I heard that government agencies take a long time to pay their suppliers. This is a "stupid" way to do business. 

Let me tell you why.

When I was in charge of an insurance company, I instructed the finance manager to pay the motor repairers promptly when they receive the invoices. They wanted to wait for 30 or 60 days. I overruled them.

I wanted the motor repairers to be paid promptly - as the price for the repairs have already been agreed, and the repairs have been carried out satisfactorily.

I have a common sense reason. Our money sits in the bank account earning 0% interest. The motor repairers have to rely on bank overdrafts which cost them probably 10% per annum. If we reduce their cost of financing, they will give us better prices. 

Indeed, this is what had happened. Word got around the motor repairs that they will be paid immediately when they completed the work satisfactorily. The repairers quoted very attractive prices to compete for the job. They are able to do business with lower margins because they reduced the cost of financing. 

We built up a good working relationship with the motor repairers. They are our regular contractors, so the relationship serve both parties well.

I now come back to our government agencies. They should pay their suppliers promptly and reduce their cost of financing. The suppliers wil be able to quote lower prices, as they can accept a small margin. The savings come from their cost of financing. 

The banks will probably lose this source of lucrative business. Do not worry about them. They are making billions of dollars of profit. They will still be very profitable.

Tan Kin Lian 

Vote - should govt agencies pay their suppliers promptly. 
 

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