Buyers and vendors need the lowest possible prices, but an entity or corporation with a slow pay reputation is always quoted a price with the cost of the holding, invoicing, money, and collection included. Those suppliers that do not factor in these extra costs soon learn that their "contract" is not as profitable as they expected and then search for ways to "break" it or reduce the quality of service. No one enjoys that kind of relationship so lets explore some preventions and remedies.

If your finance department is known for its slow paying procedures, the buyer should meet with the appropriate staff members to explain how it is reducing the purchasing power. Also invite one of the finance staff members to a pre-bid or meeting with a potential supplier where the buyer will acknowledge there is a poor pay reputation. Once the reputation is "on table" then all attendees should brainstorm a solution. One idea is to promise to always pay this upcoming project on a current basis in return for the supplier's promise to provide the absolute minimum profit margin.

If the slow pay is created by the using department, then the invoice procedure and the internal payment authorization procedure need to be visited. Explore the feasibility of the supplier by-passing the user department with the invoice so it can go directly to the comptrollers for automatic payment and credits can be applied to the next invoice if there was an error.

Fixed monthly payments with an adjustment annually is very successful for Service contracts, but the same combination could also be designed for commodity contracts.

NOTE! The above and other solutions for slow pay are discussed more thoroughly in our seminars.

© 1997 by Donald L. Woods, All Rights Reserved