Money mindset

“I’m not paying £6 for a small cup of hot chocolate” said my friend. As a procurement professional of many years I could have chosen to take the conversation in many directions - after all the other drinks on the menu were comparatively priced with other local cafes, and we were in a chocolate shop. Instead I responded “what does that say about how people should react to your own prices?” I’m not suggesting we pay what ever is asked without consideration of the going rate for that product or service. I am however suggesting we also pay attention to our own energy around payment to others. It can’t be true that we are always worth what we ask for payment and others are definitely not. It can’t be true that we are worth what we are paid to do our job and yet others should provide theirs for free. It can’t be true When you’re next begrudging paying someone you may want to spend a few moments exploring the beliefs that are driving that reaction. hashtag

Who owns payment terms?

Dearest Finance 

Please stop acting as if payment terms are yours to be changed at a drop of the hat to help you meet your objectives. 

 

Please enter into a debate with procurement about the short, medium and long term repercussions of any changes, and to also understand the contractual obligations. 

 

Thanks 

 

Kindest Regards 
 

Procurement xx

 

Payment term extension seems to be about taking short term pleasure for extended, repetitive and sustained pain! The problem is the pleasure is seen in the accounts (managed by Finance) and the pain lies with the rest of the organisation who have to manage the repercussions of extended payment terms. 

Yet again another organisation is lambasted in the media for extending its payment terms. Which resulted in many procurement professionals tweeting their disgust - me included and had me also tweeting this:

Finance could be accused of manipulating its performance (and that of the organisation) by moving payment terms out by 30 days thus reducing the need for cash flow by 1/12th of a year - once. There after, once the first benefit has been achieved, the situation remains the same as it was! (Unless I'm missing something?). 

The problem is for Procurement it's not a single pain. Suppliers impacted by such decisions can and do let their feelings be felt, and rightly so.

When negotiating with a buyer suppliers understand the payment terms in place. These are taken into consideration when pricing is offered and during negotiations. Some suppliers even choose to offer concessions for improved payment terms. It's part of the negotiation and procurement very carefully assess the pleasure/pain (cost benefit) of accepting such offers. Once agreed, these payment terms are then included in the contract. 

The problem is a statement that payment terms are being extended unilaterally invalidates everything procurement has done. Procurement doesn't just negotiate price in isolation to everything else on offer - volumes, delivery, quality, service, total cost of ownership and other business requirements are weighed up and assessed as part of a whole package. These are included on the contract that gets agreed and signed on behalf of the whole organisation.

It's not Finance's place to renege on a contract - nor assume that procurement can obtain the suppliers agreement to such terms. Bullies generally get their comeuppance and whilst many suppliers might be afraid to say No directly they will find other ways of retaliating.

Alison Smith

Inspiring change inside and out - when what you're doing isn't working

Although perhaps this relationship with Finance is simply an extension of the lack of stakeholder engagement seen in many procurement departments and discussed earlier in the week.
 

How to get your invoices paid

Over the last 27 years as a procurement professional I've negotiated many different payment terms with suppliers. This blog isn't about the validity of those payment terms whether: in advance, on delivery, 14 days, 30 days, 60 days and beyond. It's about the things you can do as a supplier to maximise the likelihood of you being paid in line with the terms agreed.

I have to admit there will always be companies with cash flow problems. There will also always be dishonest companies wanting to find ways to not pay what they owe. I can't offer much advice on those companies other than say do please ensure you undertake due diligence ahead of accepting orders from anyone. In addition most late payers have a history of such and with social media it wont take too much investigation to find out if your new potential client is one of these.

I do however have advice on how to facilitate getting invoices paid by companies wanting to pay invoices in line with terms agreed:

A few things to remember ahead of time, because whilst you might be dealing with people once it gets to payment you're often dealing with systems and you need to know how to make the system support what has been agreed, :

• the person placing the order should have authority to do so within their company,
• the person placing the order may see responsibility for paying as the role of another department and not even think about it,
• the person paying the invoice is very unlikely to be the person who placed the order and often knows nothing about what was agreed,
• your invoice may need to be allocated to an appropriate budget heading before being paid,
• someone will need to authorise the invoice and that may not be the person who placed the order or who actually pays it,
• many larger organisations have '000s of invoices arriving daily which is why they rely on a system to pay them - or have set times in the month when all payments are processed, 
• payment of invoices is always set up to default to the buyers terms unless agreed, communicated to the appropriate department and amended on the system otherwise. Saying it's been agreed on your invoice won't often be enough to override this default as they will get many many invoices all stating supplier standard terms despite the buyers terms being agreed,
• even if someone agrees different payment terms to the organisational standard they may not have permission to do so.

With that in mind here's what I do:

• Along with price, and other terms, agree payment terms.
• Understand what their normal payment terms are.
• If payment terms agreed are different from their standard terms you need to find out if they have authority to agree them. and then ask how that will be handled (does someone else need to know ahead of time, do systems needs to be changed, when would they need the invoice, will it be cheque or BACS etc).
• Ask for an order number - for most organisations this is essential. Without an order how can you know that the person placing the order is authorised to do so. In a systemised business without an order number how can accounts payable know who needs to authorise it and/or be able to track it back to the budget it needs to be allocated to?
• Find out what details they need on the invoice - the type of info I would suggest needs including covers: order number, person who placed the order, full details of service/products supplied and when, payment terms agreed and with whom and of course price. 
• Find out who to send the invoice to - often this may not be the person who placed the order and could be in a different office, town, country.
• Raise invoice in line with payment terms - if you've agreed payment on delivery or, I'd suggest, within 21 days of such, you may need to raise the invoice some weeks ahead to be able to allow their system to process it and still pay you to the terms agreed.
• If the payment terms agreed are not their standard you may want to add an additional covering note as a means of highlighting they need to treat this invoice differently to others - just saying I know your standard terms are x but Mr z agreed you'd pay me in y - please contact me if you have any problems 
• Send it to the person/department you were told to.

One word of caution the more your payment relies on manual intervention (ie it sits outside their normal terms) the more likely it is to fail - because people have other work to do, take holidays, are ill or absent from work. They might have thought they could pay you 14 days from delivery but if it sits unopened in someones in tray for 2 weeks you're the person who suffers.

I'm afraid it's up to you to make sure you understand the system for payment within the company and make sure you use it to get your invoice paid. Payment is often the last thing the person placing the order thinks about and yet is the only thing the person in Accounts Payable wants to do - and can with a little help from you.

Alison Smith
The Purchasing Coach
Sowing the seeds for effective working relationships with suppliers

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