Most buyers would pay early to assist struggling suppliers

24 November 2008
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24 November 2008

The majority of buyers would be willing to change their payment terms to assist their suppliers with liquidity and cash flow.

According to the latest SM poll of 100 buyers, just under three-quarters of purchasers said they would consider shortening the period it takes to pay their vendors if it proved helpful. An opposing 27 per cent would not.

It follows announcements from a number of public and private sector organisations that have promised to speed up payments during the economic downturn (Web news, 12 November). The chief message was helping suppliers in this way would create stronger relationships and would improve the profile of the buying organisation.

"During a treacherous time, I reduced the terms of one or our strategic suppliers to increase their cash flow, which helped keep them fluid, key to their survival, and vital to our supply chain," said Peter Easterby, managing director at consultancy Peter Benjamin Associates.

"Potential benefits include ensuring the supplier is there to service our requirements when we come out the other side of the downturn, and ensuring that we don't end up having to find a new supplier at a time when we are already incredibly busy," added Shaun Evans, supplier relationship manager at Britannia Building Society.

However, respondents said they were unlikely to be able to provide a unilateral shortening of terms and would have to consider vendors on a case-by-case basis.

"To be practical you could not cut all suppliers' payment terms," said consultant Alex Strange. "The payment terms I would consider cutting would be for 'specialty suppliers' - goods made specifically for you, vendors with whom you have long-term agreements, with whom you spend a lot of money and where the products are critical to the buyer's survival."

And other buyers argued there should be a reciprocal arrangement with vendors. "This must still be a two-way process and the seller must be prepared to consider additional discounts on price, in anticipation of improved payment terms from the buyer," said Gary Williams, group property development, contract and supply chain management at the Peacock Group.

Caroline Wood, procurement team leader at Buckinghamshire County Council, added she would "encourage the suppliers to do the same down the supply chain so that the whole chain benefits".

SMnov2008

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