Keywords: late payments, electronic invoicing, einvoicing, e-invoicing, procure to pay, purchase to pay, P2P

Payment terms 'should be agreed at the outset'

Matthew Garrow-Fisher | News | 30 April 2012

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From late payments to technology complications, there are many things that can disrupt the supplier-buyer relationships and cause problems for both parties.

That's why agreeing payment terms up front before any contracts are signed and the purchase-to-pay process started is a sensible course of action, so that everyone knows where they stand.

This was a view expressed by Philip King, Chief Executive of the Institute of Credit Management, at a roundtable discussion following the launch of a new report by the Forum of Private Business.

According to Supply Management he urged buyers and suppliers not to treat payment terms as a formality to be decided on at the last moment.

When companies do this, they risk exposing themselves to problems and disagreements further down the line, so mutual agreement is key to come up with a deal that suits all of those involved.

"All too often the credit piece comes in after the contracts have been drawn up and there's not a lot you can do to change it," Mr King remarked.

He said discussing terms at the beginning allows suppliers to ask questions about the buyer's payment processes, which means they can be better prepared to work within that framework.

For example, if a company is using an electronic invoicing system the supplier will need to be onboarded and shown how to use the technology to best effect.

Mr King's comments come after research from Basware, carried out in January this year, revealed that for 45% of chief financial officers extending supplier payment terms is a greater likelihood than it was 12 months ago.

But as Basware's Vice President Andrew Jesse explained, passing the financial buck on to suppliers in this way could be a doubled-edged sword and potentially lead to supplier failure.