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

 

 

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16 Responses to “Pay suppliers promptly to save cost”

  • patriot of TUMASIK:

    Most Govt., Temasek CONTROLLED corporation pays in min 6 months…take it or leave it …NTUC Fair( a joke) Price supermarket and Sembawang to name a couple…no wonder they Relief you of your Job at NTUC…

    ever heard of OVERNIGHT INTEREST in Banking system Tan Ahhhh especially when it involves hundreds of millions???…why do you think CPF payments are held to the last (if POSSIBLE) of the FIVE working days before paying out monthly to Retirees???… probably NOT lah!!!… Yet they pay GST cash before the 1st…(in order NOT to Disappoint VOTERS)…the elderlies are CONDEMNED while the younger voters are Cajouled for their VOTES…”Think” leh!!! before typing your articles lor!!!

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  • Bobo:

    “I heard that government agencies take a long time to pay their suppliers”.
    Mr Tan, we heard that about 30 years ago. Looks like our govt. is still following the old ways of handling things. OMG. Perhaps that’s the reason why a successful business model is to hire new director in every three to five years to keep the business moving forward.

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  • Using and Owing:

    Hoseh was brought before a judge by a man to whom he owed some money.

    The creditor said to the judge: “This man owes me $5000 which is long overdue. I request your Excellency to order him to pay up immediately, without further delay.”

    “I do owe him money,” said the Hoseh, “and I intend to pay him. And I’ll sell my car and bike if necessary, but it’ll take time.”

    “He is lying!” protested the other man. “He doesn’t have a car nor bike or anything of value for that matter. I am told he doesn’t even earn minimum wage!”

    “When he knows I am so poor, O Judge,” implored Hoseh, “ask him how he expects me to pay him immediately.”

    The judge dismissed the case out of compassion for the poor guy.

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  • Pay me now BIATCH!:

    Spore all the same one – don’t want to pay people.

    1) Even if we agreed on the fee. They will bargain for lower when it’s time to pay.
    2) Some like to make promises they can’t keep. Agree to pay $600 verbally. Later act blur and pay only $300. Always say “misunderstanding”
    3) Worse still, some ask you to work for free, do volunteer.
    4) Don’t want to pay CPF.
    5) Don’t pay people -that’s how they get rich.
    6) Not willing to pay people, go do yourself lah stupiak!

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  • Rooster eye HSK:

    Always I learn something new from TKL.
    Nice.

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  • UniQ:

    Don’t understand why when they collect money, they want immediate, while when they pays you, it takes ages. Moreover, the final 10% will be held till end of warranty which is about 10 months later. So dated business processes and yet wants the local economy to progress. What logic ?

    No wonder, only they cronies could ‘win’ their projects and survive, while others all died.

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  • Bapak:

    Try the ship repair & marine industry, you bankrupt before seeing your money.

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  • Asd:

    No money how to pay…

    Simple logic right..

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  • TruBlu:

    now,u know,besides greedy and self-serving politician$,WHO else GOT O HELL?

    lawyers,accountants and now,DOCTORS.

    GOVT AGENCIES SENIOR FINANCE STAFFERS as well!

    it seems KING $ is ruling the RICH AND POWEWRFUL WHO RULE OVER OTHERS?

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  • patriot of TUMASIK:

    Bapak:
    Try the ship repair & marine industry, you bankrupt before seeing your money.

    Bang-on-TARGET Pak,…Sembawang!!! as named!!!

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  • Darth Vader:

    Oh wow! tkl ACTUALLY BELIEVES in paying bills promptly! Who woulda thunk?!

    You know tkl, the MORE you insist on sharing your “pearls of wisdom”, the more you PROVE to EVERYONE HERE just how STUPID you REALLY are! Don’t you know that a 30-day term simply means you agree to pay within 30 days?! You can ALWAYS pay up EARLIER if you want! You DON’T NEED to wait till the end of 30 days to pay up! The simple reason WHY practically everyone pays at the end of the month is because most companies are just barely getting by. Not EVERYONE is sitting on hundreds of millions in cash like NTUC Income is okay?!

    And YOU of all people have absolutely NO business lecturing others to “pay up promptly”, considering that NTUC Income is notorious for delaying or even REFUSING to pay up claims. Come to think of it, NO WONDER you can pay up promptly. By delaying or refusing to pay out our claims, you have more than enough to pay up promptly for whatever you owe

    The next time you wanna come here and spew crap tkl, I suggest you go stuff your own phallus in your own oral orifice to plug it up instead…

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  • Agreed:

    Agreed. Should pay promptly.

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  • Harder Truths:

    The pappies do not pay if they do not have to. The more they keep and the longer they keep it, the more they can invest through GIC / TH.

    If you cannot get your money so what? You are weak and will either be replaced by an FT or an FT company.

    Your other option is to borrow money to stay in business -this means more assets for their banks after they loan you money you cannot repay.

    When you go bankrupt your mortgage or collateral is confiscated. You have nothing.

    They win again. They always do.

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  • Left to australia:

    the word PAY is not in pappies dictionary . But suck from u is. sucking from people last 50 years

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  • Other Strengths:

    TKL, you have good business sense but may not be a savvy one.
    Moreover as others have rightfully pointed out, ntuc has benefited from the connection and sitting on a pile of cash from a captive market.
    As such making prompt payment decision is a breeze and rightly so should pay promptly.

    Perhaps this is your strength, straight forward and unscheming administrator and you should focus in this area, mentoring our young businesses and insurance agents to be good managers instead.

    However this is a handicapped in politics.
    You need to be manipulative and lie well in politics, though these may not be good things.

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  • Rotten Apple:

    Did NTUC and NTUC insurance pay their suppliers and insurers claims promptly?

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