Procurement: Take Control of Payment Terms

Inside many procurement organizations that I've gotten to know over the years, there's a certain nonchalance when it comes to the ownership of payment terms and A/P specifically. Finance departments aren't exactly excited about owning it and few procurement executives are thrilled at the prospect of taking it on. In my view, this is a shame! Procurement leaders should view A/P, including the role of supply chain finance, as a huge opportunity to buoy the bottom line. Whether a procurement organization actually takes control of the function from finance is secondary to working closely with CFOs and controllers to ideally define what payables should look like.

I like what Robert Rudzki recently had to say on the subject over on his Supply Chain Management Review blog. Robert opines that "certain working capital improvements can and should be spearheaded by procurement and supply chain professionals … One of the greatest areas of opportunity is changing payment terms. This is an often-overlooked area in companies, due to any number of potential reasons."

Among other reasons, Robert notes that the drivers for this go back to the fact that rarely do organizations put payment term management in the capable hands of any singular group or individual (i.e., it goes unmanaged) and that "people assume that Accounts Payable manages payment terms (they don't in most companies; their role is to efficiently process invoices according to the established terms)."

In my view, simply targeting payment terms is not enough from a procurement angle. Procurement leaders must step up to the plate and not only take control of payment terms, but should seize the initiative around the broader A/P function. This might involve either outsourcing the task to a third-party or creating a more operationally efficient approach that leverages EIPP (electronic invoice presentment and payment) technology and better internal processes (or both). But for this to happen, companies must get serious about A/P overall and stop treating it like the second class citizen it so often becomes inside large and small organizations alike.

- Jason Busch

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