Should buyers worry about how long it takes to pay suppliers?

Image via WikipediaAre your 'internal processes' affecting your relationship with your suppliers? Do you know what happens when your suppliers attempt to get paid for their goods & services?

The vendor relationship does not exist only in contractual interactions with the team. Nor does it end when you negotiate a contract for as, if and when requested goods & services. A very simple and KEY area that can make/break a relationship is PAYMENT TERMS. If your firm doesn't pay on time, or worse, makes it complicated for a vendor to get paid, you will end up paying for it later...

Here's a case example: a meat processing equipment distributor in Ontario had a contract with a national chain of supermarkets, to supply selected equipment to chain stores within the province of Ontario. The specifications and pricing were set, and individual stores would select from the list as required. Orders were placed/delivered in Ontario, but the purchase order & payment would come from a centralized department in the East Coast. The 'draw-down' process worked like this:
- meat manager would select equipment from the list
- store manager would approve
- the store would give a 'heads up' to the distributor as they wanted the equipment by a certain date
- order would be sent to centralized purchasing to issue a purchase order so the system could issue a cheque
(note sometimes, the purchase order would not arrive until weeks later which created its own complications)
- equipment delivered to store, delivery slip signed by receiver
- original delivery slip was attached to invoice and sent by mail (as instructed by finance)
- once the invoice arrived 4 days later in accounts payable, it was put into a pile for processing
- copies were made, coding stamped and documents sent back to the store manager in Ontario for approval (4 days via mail)
- once approval was signed/mailed back, accounts payable would enter the invoice in the system for payment within 30 days of the date of entry into their system (note we've lost at least 2 weeks already)

The vendor thought they'd try to speed up the process by having the store manager stamp/sign the delivery slip at delivery time - it took a bit more effort to track down the store manager, but at least the approval was on the slip before mailing an invoice. They thought it would save the extra back/forth mailing of the documents, and cut 2 weeks off the process...

It didn't help - the accounts department put coding on the delivery slip and wanted the store manager to approve THAT too (even though the code for the equipment was always the same - all of this was standardized in the contract negotiations).

This is an industry that would scan barcodes to tally up someone's grocery purchases, manage its ordering and inventory via EDI, yet needed original documents and Canada Post for approval of delivery & coding of items that were pre-selected by a centralized department, at a pre-negotiated price.

Guess how the price negotiations went the next round...