Friday, March 27, 2009

Does Procurement Care if Invoices are Paid Late?

Every day it seems some supplier is going out of business. One obvious reason is due to sales decrease. The decrease coupled with customers paying late result in insufficient cash to pay their payrolls and bills. Another way of looking at this is the cash conversion cycle is too long to sustain day to day operations.

If their cash conversion cycle increases due to late payments, they must find other ways to generate cash in the short term. Internal cost reduction efforts may impact the quality of the goods resulting in problem resolutions for the customer Procurement Department. Another method to generate cash is to raise prices. They may also either lower discounts or shorten payment timing. Once again, this presents Procurement with time consuming negotiations.

Late payments can also result in suppliers withholding shipment of critical goods or services. Since most purchase orders are based on delivery dates required by customer business processes, disruptions in these are normally routed to Procurement for resolution. Following this complete story can also be a laborious task with no favorable resolution to the customer.

In a worse case scenario, the supplier is forced to go out of business. Now Procurement must go through the entire sourcing exercise to find a new supplier. The new supplier may be more expensive, may be in a location that increases delivery cost or may not offer any terms. If the customer becomes know for late payment, the new supplier may demand cash up front before delivery or immediately upon delivery. If this was a single source supplier, entire business process can be impacted until Procurement finds an alternative.

Does Procurement care if invoices are paid late…I think so…what are your thoughts?

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2 comments:

  1. This could be pathetic for buyers when suppliers leave out of procurement business due to late payment or some other reasons. This happens when buyers depend upon few vendors who are appointed without proper bidding and contract. The good solution for companies who procure goods in large quantity is to contact procurement service providers who can get your reliable vendors yet at the most economical cost to make huge annual savings. I recommend visiting at http://www.globaleprocure.com will help you to understand the importance of appointing vendors through bidding.

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  2. Stumbled upon an interesting site, http://www.global-serve.com, offers complete Global IT Procurement.

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