What is a key decision that needs to be made with regards to paying vendors for goods and services?

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 with suppliers

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.

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

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
• discounts
• 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.

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:

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.

Knowing when to replace a supplier

Removing inefficient suppliers can eliminate unnecessary costs and boost your business efficiency.

Signs of an unreliable vendor might include:

• higher cost with compensating quality
• a lack of transparency
• unreliability

Be aware of suppliers who are unwilling to share their credentials, let you tour their premises or allow you to ask questions.

A make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier.

Also referred to as an outsourcing decision, a make-or-buy decision compares the costs and benefits associated with producing a necessary good or service internally to the costs and benefits involved in hiring an outside supplier for the resources in question.

To compare costs accurately, a company must consider all aspects regarding the acquisition and storage of the items versus creating the items in-house, which may require the purchase of new equipment, as well as storage costs.

• A make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier.
• Make-or-buy decisions, like outsourcing decisions, speak to a comparison of the costs and advantages of producing in-house versus buying it elsewhere.
• There are many factors at play that may tilt a company from making an item in-house or outsourcing it, such as labor costs, lack of expertise, storage costs, supplier contracts, and lack of sufficient volume.
• Companies use quantitative analysis to determine whether making or buying is the most cost-efficient method.

Regarding in-house production, a business must include expenses related to the purchase and maintenance of any production equipment and the cost of production materials. Costs to make the product can include the additional labor required to produce the items, which takes the form of wages and benefits, storage requirements within the facility, holding costs overall, and the proper disposal of any remnants or byproducts from the production process.

Buy costs related to purchasing the products from an outside source must include the price of the good itself, any shipping or importing fees, and applicable sales tax charges. Additionally, the company must factor in the expenses relating to the storage of the incoming product and labor costs associated with receiving the products into inventory. It also includes signing any contracts with suppliers that might require the company to be locked-in to certain deals for a certain period of time.

In a make-or-buy decision, the most important factors to consider are part of quantitative analysis, such as the associated costs of production and whether the business can produce at required levels.

The results of the quantitative analysis may be sufficient to make a determination based on the approach that is more cost-effective. At times, the qualitative analysis addresses any concerns a company cannot measure specifically.

Factors that may influence a firm's decision to buy a part rather than produce it internally include a lack of in-house expertise, small volume requirements, a desire for multiple sourcing, and the fact that the item may not be critical to the firm's strategy.

A company may give additional consideration if the firm has the opportunity to work with a company that has previously provided outsourced services successfully and can sustain a long-term relationship.

If a firm is going to buy or outsource, it's essential that they work with a company that they can rely on for the long-term.

Similarly, factors that may tilt a firm toward making an item in-house include existing idle production capacity, better quality control, or proprietary technology that needs to be protected. A company may also consider concerns regarding the reliability of the supplier, especially if the product in question is critical to normal business operations. The firm should also consider whether the supplier can offer the desired long-term arrangement if that is what it requires.

If a company is already in business there may be a point when certain situations arise that will cause a company to pause and consider which direction it should proceed in; whether it should buy or make the parts or products it needs.

Some of these events could be a trusted supplier shutting down, an increase or decrease in demand for the product, or a possible path for new opportunities. At these junctions, management will have to consider the advantages of either making or buying the product, which can also be outside of a cost-benefit analysis. Will one decision lead to economies of scale, to a possible new product line, or a restructuring of the core business?

Depending on the business and its place in the market, there will be both advantages and disadvantages of continuing down the same path or forging a new one.