A friend of mine has a habit of not paying his bills until the day they are due. He’s also known for driving to the post office right before it closes on April 15 to file his taxes. His reasoning is simple—he doesn’t want to give up his money any sooner than he has to. Over the years, I’ve worked with many construction companies who also wait as long as possible to pay their vendor and subcontractor invoices for the same basic reason. But in business, there are other considerations that lead to the counter-intuitive conclusion that it is usually better to pay on time or even early.
Why Pay Early?
Here are two reasons why paying bills early can actually be a better way to save money than holding onto cash as long as possible:
- You have the ability to negotiate better deals from your vendors.
- By paying your bills early, you earn good will from your vendors. They will be more willing to offer you best pricing or discounts since they know they can expect prompt payment from you. Just as you probably know which of your clients pay you promptly, you can be sure your vendors and subcontractors know as well.
Save more money through efficient processing
I recently worked with a client on automating their accounts payable process. We realized that the amount of time they were spending manually adjusting payment schedules was costing them much more than they were earning on just a few extra days of cash in the bank. This is particularly true with today’s low interest rates. Construction accounting software can help you automate invoice payment in much the same way that most companies have automated their Construction payroll processing. Not only does this automation save time and money, but if combined with payment card options, your vendor payments can actually make you money.
Do you pay your bills early? Why or why not?