Ensure your payment processes enable financial resilience and timely wages

Fair and reliable payment terms help suppliers maintain healthy cash flow, pay workers on time, and invest in better working conditions. When payment terms are too long or payments are delayed, it can create real challenges for suppliers and for the people working in your supply chain.

Suppliers have financial obligations to pay their workers, suppliers and overheads. Long payment terms or late payments can put significant pressure on cash flow, potentially leading to late payment of wages, reputational damage with providers, or high interest rates with lenders. These impacts can erode financial viability, worker wages and investment in improved environmental performance and working conditions. 

Offering shorter payment terms is a practical way to help suppliers strengthen their cash flow and invest in better working conditions. Some companies offer partial payments upfront, to help cover fabric costs when these are needed. Flexible or shorter terms are especially recommended for smaller suppliers or those facing financial challenges.

In this video: Jerry, a factory manager in China

Jerry talks about the challenges manufacturers face when payment terms are too long. He highlights: 

• 30-to-60-day payment terms (which are short compared to much of the industry) place significant financial pressure on to suppliers who need to pay workers (and their own suppliers).
• As a manufacturer, they are regularly faced with not being able to pay workers on time, because of long payment terms or delayed payments.
• One of their good customers pays 20% deposit and pays the rest within 2-3 days after the goods are shipped.
• This helps the manufacturer to feel respected and treated as a partner.

Track and improve payment times

Late payment for goods is a common challenge for suppliers—one that many buyers may not even be aware of. Putting systems in place to track and improve payment times is good practice and a meaningful way to measure and strengthen your company’s responsible purchasing performance.

Consider responsible financing options

Whilst third party financing options should never be used to replace responsible practice—including timely payments, reasonable payment terms and sustainable costing—it’s important to acknowledge that some suppliers may need additional financing support. Often this need is met by unethical providers at high risk and cost to the supplier. 

Many purchasing companies are in a strong position to support their suppliers to access more responsible and safe financing. This may be a viable way to help suppliers financially, in parallel with improving purchasing practices.