The procurement industry talks a lot about supplier risk and supplier management, but what about ‘buyer risk?’ More and more stories are popping up in the news and industry publications about big companies – with large cash flows – that aren't paying suppliers on time, or at all.
Bottom line: Failure to meet contract terms (by the supplier or buyer) is a sign of a poor partnership.
Yet, buyers are also now building longer payment terms into contracts, up to 180 days. While that keeps cash in a company’s pockets for the short term, it has a tremendous impact on a supplier’s financial health. And in turn, the supplier’s value and perception of the buying organisation is negatively affected.
Procurement Leaders’ Tim Burt recently summed up procurement’s role in the payment cycle:
“It is a difficult path for procurement to tread because of the fact that the function operates at a junction between the business and suppliers, with responsibilities towards the former which rely, in some sense, on their performance in handling the latter.”
If a certain supplier is critical for meeting customer demand, why would you put that supplier in financial jeopardy?