Having worked for an organization that received government grant money for projects – and had strict accounting controls for charging purchases against those funds – I can understand the inconvenience caused when a supplier submits an invoice extremely late. However, I respectfully disagree with some of the advice in the blogosphere on how to handle late invoices.
This advice started with a post on the Vendor Management Office blog. The blog began with a very thoughtful citation of a Virginia state law that considers invoices submitted up to five years late to be legally enforceable for payment. Good stuff to know!
Notwithstanding this law, the blog then goes on to provide tactics for purchasing professionals to weasel out of their legal payment obligations. I was a little surprised by some components of this advice, which included threatening to cease doing business with the supplier and taunting the supplier to file a lawsuit, as I consider myself a fan of the author – one of the few individuals in the world I would consider for Next Level Purchasing’s open Director of Education position.
Then, Spend Matters dedicated a post of its own to sharing highlights from the Vendor Management Office post, calling the tactics “sage advice.” But is it sage advice?
Maybe in the “caveman days of purchasing,” where the only performance indicator was cost savings and a forgiven invoice could add a couple hundred bucks to your cost savings total, it was sage advice. The “caveman buyers” of years gone by would wait for a supplier to falter just so they could screw them out of a few pennies to add to that cost savings tally.
But, in today’s world where collaborative supplier relationships are more important than ever, is it sage advice to refuse to pay for goods or services that you’ve received and are legally obligated to pay for?
I think not – unless you want “caveman suppliers” who wait for you to mess up so they can stick it to you.
As a very frank side note, I don’t really think that Jason from Spend Matters considers these tactics to be “sage advice.” Otherwise, he wouldn’t have ended his post by writing “Just please be sure to don’t use any of these techniques against any business I’m a part of, now will you!”
Jason doesn’t want or deserve to be cheated out of money he is legally owed and neither do the suppliers who you will certainly someday call at 4:30PM on a Friday afternoon with an emergency order or expediting request. Plus, those of you whose finance departments have recently forced you to unpopularly extend payment terms with your suppliers from a standard of net 30 days to net 60 days or net 90 days or more know that a supplier that submits an invoice late is kind of doing you a favor!
Despite my disagreement with most of the tactics in the Vendor Management Office post, there was actually one brilliant piece of advice saved for the end. It stated:
“As a preventative measure, you can contract around your state laws by including something similar to the following in your contracts with suppliers:
‘Supplier acknowledges that it must submit invoices on a timely basis to Customer so as to avoid any unnecessary business hardship on Customer. Notwithstanding the laws of the state of [insert state here] and Supplier’s rights to collect on debts, Supplier hereby agrees that Customer shall not be required to pay any invoices submitted by Supplier that are submitted by Supplier more than twelve (12) months following the date that the goods or services, as the case may be, were provided by Supplier.’”
This I agree with wholeheartedly and think that you should include this clause in your contract templates and purchase order terms and conditions!
Because, as I alluded to at the beginning of this article, it IS a problem for some organizations to be billed after grants, budgets, etc. have been closed. If a supplier agrees to a prompt billing obligation, agrees to the consequences in advance, and fails, then you aren’t screwing them out of anything because you are not legally obligated to pay them.
If circumstances permit, you should still try to be reasonable and pay them. But, if you can’t, then you know that you are not thumbing your nose at a legal obligation.
Leave the nose-thumbing to the caveman buyers.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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