Procurement payment terms – the basicsUsually, in an organisation the procurement department is responsible for negotiating, agreeing and setting certain payment terms and when working more closely with finance companies can see savings drastically improve. The relationship with the suppliers is also very key when we are focusing on procurement payment terms. Engaging constantly and having an easy communication channel can go a long way.
Is your organisation getting the most of its payment terms?Initially, before deciding to move forward with a supplier, payment terms need to be taken into consideration. Many industries are different and have distinctive rules or needs in terms of payment contracts. Also, where you do business can have a major impact on payment terms. Optimising your procurement payment terms can make a big difference regarding overall cost savings. Reviewing your payment terms on a regular basis can help to manage and have give a clear view over cash flow. But you have to constantly keep in mind that it takes time and resource to talk and negotiate with each supplier, it’s just not practical when you look at scale. Sometimes, a simple email or phone call can result in a supplier improving payment terms that can save you time and effort in further negotiation. And lastly, it is important to keep on nurturing these relationships because once there is a disruption in the process it is hard to revise certain conditions. It is mandatory to prepare an escalation plan in case some suppliers will reject different changes on payment terms.
Tips for improving payment termsThere are opportunities for organisations to improve their payment terms practices such as:
- Review your suppliers who are on immediate payment terms
- Consider identifying appropriate suppliers spend and use discounted payment terms
- Consider the standardisation of the payment process
- Improve payment on time