News stories involving supplier payment issues have been frequent lately. In the doghouse are companies like American Apparel and Target who have been knocked for either failing to make payments or having suppliers send invoices to an arm of the company that was planning to file for bankruptcy protection. And a British brewing company is turning some heads by requiring that suppliers extend to C93 terms (suppliers won’t see payments until 93 days after the end of the month in which they invoice- ouch!).
Despite all of the negative news some companies are taking steps to make their terms more attractive to suppliers. Recently, Tesco, a supermarket chain in the UK, announced plans to create a payment structure based on the category and size of the supplier. This new change will allow their smallest suppliers to receive payments in just 14 days, a drastic improvement over the industry standard of 28 to 60 days.
These new stories are an excellent reminder of the importance of communication between the procurement and finance departments. Not all suppliers can sustain the same payment terms across the board. At the same time, accepting accelerated terms with too many of your suppliers may put your own organization in a cash flow crunch. So, it’s imperative to work closely with your finance team to understand how improved terms may benefit both you and your suppliers in some situations. The last thing you want to do is alienate your best suppliers with appalling payment terms or processes.