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1 May 2012 | Adam Leach
Paying suppliers on time is vital to maintain good relationships with suppliers and preserve the reputation and credit rating of your business, according to a panel of buyers.
When the SM100 were asked “Is ensuring prompt payment (within or faster than agreed terms) to suppliers a priority at your organisation?” 84 per cent of buyers said it was indeed a priority for them, with the remaining 16 per cent answering the opposite.
John Milne, procurement director at Hampco, said paying suppliers on time is an effective way to ensure they provide a good quality of service: “Much better prices and quality of service can be obtained from suppliers if you pay on time, but the buyer needs to emphasise this in negotiations as most vendors have become inured to late payment.”
Don Bowman, purchasing manager at the University of Kent, agreed prompt payment provides the buying party with benefits. “Showing that we always pay within 30 days should encourage suppliers to consider trading with us at tender stage,” he said. “They are also less likely to let us down if they know we will promptly pay as opposed to someone who may delay their payment.”
While it was identified as a priority for the majority of respondents, 16 per cent said it wasn’t. One buyer spoke of a “fairly chaotic situation” which was causing “constant problems” for his company. His main concern was repeated late payment could result in damaging his company’s credit rating. He also felt that it created extra work: “Once you have a reputation as a poor or late payer, suppliers tend to start chasing before due dates, which is of course extra hassle.”
Vincent Fernandes, interim head of procurement at Home Learning College, also said it wasn’t a priority, but is working with suppliers to manage the impact. He said: “I know it’s difficult but no [it’s not a priority]. I have been delaying payments, however, I made sure that all my supply chain is aware and are OK with it. There are always certain suppliers that you can’t defer, as such, their payment goes on time.”
Brian Grew, vice president, commercial, marketing partnerships at Live Nation, said while buyers should still drive a hard bargain with suppliers, they should ensure that payment goes on time: “By all means drive a hard bargain, pore over the contractual detail, warranties and indemnities but payment terms are a key part of the deal. After all, you don’t want a supplier’s first thought to be ‘will I get paid?’ when you’re in trouble and asking them for help.”
He added that there is a responsibility on the supplier’s side to ensure their invoicing is correct and within the rules set by the buyer, so that the process can run smoothly.