Energy & Utilities Services
The Unintended Consequences of “Net-Never” Payment Strategies
An accomplished procurement executive recently joked with me that their prior employer’s vendor payment terms were “net-never.”
The phrase resonated with me and my team, as we’ve witnessed just how difficult many organizations have been making it for their suppliers to actually get paid for the goods and services they’re providing.
It’s easy to understand why organizations have adopted strategies for controlling the outflow of monies to suppliers, including:
- Extended payment terms
- Particular invoice delivery requirements
- Invoice dispute processes
- Requirements to interface with systems such as Ariba, Coupa, etc. that directly charge vendors for access
However, it has become increasingly clear in recent years that these strategies often backfire on organizations, with any small “gains” quickly and easily outweighed by the unintended consequences:
- Vendors become less cooperative
- Resources are wasted on both sides chasing/verifying “old” invoices and payments
- Vendors are emboldened to “margin grab,” with little to no fear of upsetting the customer
- Credits/refunds become difficult to recover when the vendor is owed significant sums
On numerous occasions in recent past we have seen indirect services suppliers walk away from what should be—by any measure—extremely attractive business, singing the same refrain every time: “Why would we want this business? They don’t pay.”
In a landscape where a growing power imbalance finds buyers already operating at a distinct disadvantage, and where supplier industry consolidation has left these disadvantaged buyers with fewer and fewer options, further loss of marketplace leverage due to self-imposed payment issues is simply inexcusable.
Of course in large organizations—which, typically, are products of mergers and acquisitions—being a reliable payer is often easier said than done. For example, a large client recently told us they have 16 different payment systems throughout their organization. In environments like this, connecting the dots from receiving an invoice to getting a supplier paid simply isn’t as easy as it sounds:
- Complex invoice delivery methods and PO processes cause payment difficulties.
- Organizational disconnect from procurement to operations (IT, HR, quality, security, etc.) to accounting creates challenges validating invoices, which can cause delays.
- Longer payment terms create 2X, 3X, etc., the outstanding invoicing at any given time, adding further confusion.
- Longer payment terms also make it more difficult to investigate questions, as a “current” invoice often involves services rendered months ago.
The good news is that solutions have been emerging to help solve this problem, and most large companies have already enlisted outside assistance with their payment processing.
However, the bill payment universe has yet to truly reach its value-add potential for customers. At every turn, what seems to be missing is advocacy. It’s as if the only mission is getting payments out the door, with little regard for whether those payments are correct. Further, most payment solutions are “cost-plus” which essentially eliminates the incentive to reduce said payments.
This is why after 20 years of client advocacy, auditing and managing some of the most complex indirect expenses, Fine Tune has in recent years begun offering bill payment services as a part of our suite of client solutions.
With Fine Tune handling bill payment for your most complex indirect services, you’ll find it’s possible to do the following:
- Reliably pay your suppliers—and thus boost your purchasing power
- Avoid spending countless hours of internal and vendor resources chasing payments
- Stop OVERPAYING by bringing auditing and advocacy to your bill payment processes
- Stop overpayments before they happen, as possession is 9/10ths of the tactic
- Avoid and even capitalize on predatory vendor invoicing practices
- Have clean vendor/expense data (as data errors are inevitable when relying on suppliers and/or layers of internal resources to properly enter and track invoicing within complex purchasing systems)
It’s time for large organizations to wake up to the unintended consequences of being a “net-never” payer. The costs dramatically outweigh the benefits, and there IS a better way.