Sherry: Hello, and welcome to all our viewers on CFO insights. I am Sherry, a financial technology consultant at Hyperbots, and I'm very excited to have John Silverstein here with me,  who is a seasoned finance executive with over 2 decades of experience in leadership roles with expertise across both Fortune 500 companies and high-growth startups. Thank you so much for having us today, John. Today, we'll be talking about optimizing late payment decisions to incur penalties or not. To start us off, what are the key considerations when deciding whether to incur a late payment penalty?

John Silverstein: Yeah, so it's always complex. And you don't want to mess up your relationship or have relationship issues with your vendors. So I'd start out. It is just to ensure that you're not impacting the business in a way that you can't do business anymore. So that's, you know, number one, and then late payments. Ideally. It depends on the business, the industry, and things like that, whether you incur them or have to pay them or things like that as well. So, I'd make sure that you are with the standard or that you negotiate or try not to pay them in cases and have the right relationship with your vendors upfront. So the key is that you can grow with your vendors. Your vendors need to be more like partners than you can. You can grow and sell more items if you have the right financing on the right terms, and sometimes you need special terms for an agreement that might be larger or things like that. So the goal is obviously to avoid and reduce and make sure that you're not having increased money costs because of late payments and things like that. But there are times where you need to conserve cash, and you need to reduce risk, or you might need to make covenants or things like that on your debt side, if you have those as well, so you can also look at the other options that are out there that some of the vendors have for vendor financing-type programs and things like that. You can look at your cash flow availability and try to change. Look at your cost of capital and revolvers and things like that that you might already have, or the actual structure of your company before you have to impact those relationships. The penalty cost is often lower or similar, and it depends on how long and how late you're going to pay and things. But could be lower than your return on your alternative investment or alternative funding. So you need to look out for that and try to stay on top of it from a relationship standpoint as well.

Sherry: And how do these late payment penalties typically affect a company's cash flow and financial planning?

John Silverstein: Yeah, so they're hard to predict if you're not doing it. Because typically you're not expecting in your AP, and things, you're not putting it in accounts payable to pay late payments. So on your cash flow, it's generally just an incremental cost of capital to you. So it's not ideal to have them. It's also you don't. It's hard to remember. And often the systems don't tell you, you know, which ones are going to incur late payments or not incur, and things, and it's harder to track because it's added on to the next invoice or to a statement and things like that. And then you end up wasting time, too, and negotiating or trying to figure out what the extra fees are, why things don't match between what the current statements are in bills, so it can have a significant impact on your cash flow by increasing unexpected expenses. You don't expect to make late payments. Normally, I would say your cost of purchases goes up. So if your margin and your sale were actually at a specific margin, you just might have affected your sale by 2% on your margin as well, so that can cause bigger impacts and also for future sales or future relationships. As I spoke to in the beginning, that can impact where they might make you prepay, and you may not even have the option to have a late payment in the future. If you're not on top of it. So it's critical that on a 2%, on a large invoice, it can erode those savings, and your companies must plan to avoid these penalties as much as possible. Again, it's better to negotiate and make sure that you have the terms and predict and forecast your cash flow. So you understand if you can actually complete within terms, and you can generally, vendors want to grow, and they want the sale, too. So it's not just you're in it together.

Sherry: And when might it be strategically advantageous to delay payments and incur a penalty? And can you provide an example of the same?

John Silverstein: Yeah, it might be strategically advantageous to delay a payment if there are other things, or there might be an opportunity where you can. It's impacting the cash, and it might be the penalties lower than the opportunity of cost or using the cash immediately, or you might be able. Maybe it would stop you from doing a different sale, too, if you had another sale in line. So maybe there's a negotiation. If you can use the same vendor. Increased volumes, too. If a vendor charges a point 3% monthly penalty, it's also that's monthly it's going to incur. So you have to watch that. And your cost of capital is 10% delaying. You're better off. You could invest that cash at a higher return elsewhere. So you have to look at the full picture again. A strategic decision on whether to conserve cash or incur a small penalty is worthwhile or not.

Sherry: What criteria should CFOs use to determine whether to pay on time or delay payment with a penalty?

John Silverstein: CFOs, they should look at the versus the cost of penalty versus investment. Return and look at the pipeline sales relationship the cash flow needs. Do you really need it? The risk of not having the cash or paying it out? The historical performance? And you know again you try to avoid it. So if you're going to get a late penalty of 3% per month or something, that's 36%, you're not going to want to pay those high levels, most likely.

Sherry: And how do companies typically structure their authority matrix for late payment decisions?

John Silverstein: Most companies have a multi-tiered authority matrix. So the department's main managers might approve a minor deviation, while higher value items and things might need to go up to senior management. A CFO signs off eventhe  CEO. So a centralized approach obviously ensures that there's consistency. So it's not different, and the vendors and things know who to talk to, and things like that as well.

Sherry: And how can leveraging technology such as Hyperbots' Payments AI Copilot improve the decision-making process regarding late payments?

John Silverstein: Hyperbots' Payments AI Copilot. It automates the tracking of these payment deadlines and also monitors the cash flow projections and things. So you can make that decision informed versus just looking at your bank account and being like, I don't know that I can or can't, or what's happening. So that's key is the monitoring of you know what the impact was in the past, what the actual contract terms are as well, so it can simulate various scenarios to make sure that the penalty costs against the investment returns, makes sense for the finance team. If the AI detects delaying the payment would incur the 0.3% penalty, but free up cash for a high yield opportunity. It will flag this as a potential strategic move. And you can again. If you see this information upfront, too, it gives you. It allows you to have the conversation with the vendors earlier on, too. So you're not; you may be able to avoid the payment. To begin with.

Sherry: And how do you balance maintaining vendor relationships with the strategic decision to delay payments?

John Silverstein: Yeah, you want to make sure again that you have that relationship with the vendor. So you can make these decisions and ideally not incur any penalties. Talk about the approach and have those open conversations. So it's a collaborative approach with the vendor because, again, both companies want the sale . At theend of the day, you should inform the vendors in advance. If your delays are happening, you should have that relationship so you can do that. You can tell them you know the nature, or have that conversation to, you know, on where it is you could change terms where you pay and maybe change the terms going forward and things where it's a win-win for the vendor as well, because you're getting a sale that allows you to actually improve going forward. Being proactive allows you to manage and keep those relationships open. And you can then you'll be able to make these decisions going forward, and you won't be required to like prepay or other things, because just because you're making a vendor late payment or something like that, they could actually change your terms and your credit ratings as well. So you need to be very careful about doing that. Discuss just the short-term extension with reasons and things your vendor might also want The long-term relationship is important because you could take your business elsewhere as well. So it's strategic on both sides, and you need to be aware of it and all the facts.

Sherry: Thank you so much for being here today, John. I always learn so much and have such insightful conversations when you're with us at CFO Insights.