The following article was prepared by Mike Taylor, C.P.M. for distribution to NAPM affiliate newsletters. 


It Ain't Over Until it's Paid!

October 31, 2000

When negotiating contracts and purchase orders with suppliers, don't forget to consider the payment method. With new electronic tools, payment method is an opportunity savings waiting to happen. This is particularly true if the agreement will extend for a long period of time and or include multiple payments. In addition to your savings, many alternative payment methods will also save the supplier time and money and those savings should be on-the-table in the negotiated agreement.

Consider some of the following options:

1- Require that long-term suppliers accept Electronic Funds Transfer (EFT). Payments are deposited directly into the Sellers account eliminating the need to write and mail hard-copy checks, and getting the money to the seller's bank 3-4 days early.

2- For long term agreements of small-dollar merchandise, establish a process of Evaluated Receipt Settlement (ERS) wherein the supplier is paid the PO price based on the packing slip. Eliminates the need for invoicing and invoice matching, and gets the payment made much more quickly. Reconcile quarterly (if at all). Can't sell it to the boss? Add the cost of your time in trying to locate the lost box of pencils and see what they really cost you. Probably more than if you just bought another.

3- Set up an arrangement wherein all the deliveries are consolidated into one monthly statement. (You already do this?) Well then consider extending the consolidating period to quarterly or semi-annually. If usage can be reasonably predicted, negotiate fixed monthly payments and reconcile on a semi-annual basis like some utility companies do. Eliminates monthly billing and matching costs, and smoothes cash flow for the supplier and you.

4- Establish a contract wherein the payments for each release are made by Purchasing Card. Negotiate pricing and terms up front, but automate the billing and payment process with the P-Card.

5- Go one step further and let end-users issue their own releases against the blanket order and use their purchasing card for payment.

6- Here is an interesting alternative... The seller sends an invoice and once reconciled you pay it using your credit card.  

7- Use the Internet and let end-users log into the supplier's web site and place releases against the negotiated blanket order using their purchasing card. IMPORTANT: if you take on the task of entering order data directly into the seller's system like this, then expect the seller to see (and refund) significant savings in order entry costs.

8- Don't forget the advantages of setting up a consignment inventory, where the seller owns the stock and you pay only for what you use.

9- And the new rage... on-line accounting and payment reconciliation. Consider negotiating an arrangement with the seller wherein the accounting and reconciliation happens on the Internet in a secure web site. Stop paper movement all together and share the account keeping tasks. Consumers are doing it in droves, and it's about time we merchants got started. Example: http://www.eds.com/services/financeandaccounting/  

10- Do you have people or suppliers traveling? Consider using an on-line service for them to prepare and submit expense reports. Example: http://www.concur.com/solutions/exp/default.asp   

11- If you haven't already done so, use one of the many packages that allow electronic freight invoicing, auditing and payment.  

12- Work with your supplier to get invoices submitted electronically. Even if it is only an email copy of the invoice, it still saves time and paper.  

Here is a news article which highlights some of the new technology, <http://flashcommerce.com/articles/00/02/28/142902840.shtml

You can also hear more about this subject at one of my e-commerce seminars and programs. To see an upcoming schedule and read more about e-commerce, go to http://www.mltweb.com/mltweb.htm 

Bottom Line: There are many possibilities for eliminating part or all of the payment process. At the high end, do everything you can to transfer data electronically. Eliminate duplicated data entry and everyone starts seeing real savings!

Negotiation tip: The retail price of a product or service is a lot higher than the seller's cost. If I buy the burger I pay a buck, but if the seller gives me one, it only costs him 35 cents. He'd rather give me the burger than give me the buck! Instead of asking for the money back, ask for a product or service from the seller. If you implement improved payment processes, instead of asking for money back, ask that the seller's savings be refunded to you in the form of products, user training, system modifications and/or product enhancements. You'll get more, more easily. 

Mike Taylor is the owner of  www.mltweb.com  and presents seminars and programs on purchasing topics.


 

MLTWEB is assembled and maintained by Michael L. Taylor, C.P.M. 
Materials and articles prepared by Mike may be shared for purchasing education provided that this source is cited and no fee is charged. The rights for any other use are withheld.
Copyright;  Michael L. Taylor, C.P.M.
Last Updated: 11/26/2016