When A/P Meets Common Sense: Discounting and Payment Terms (Part 2)

Part 1 of this analysis featured observations on the intersection of sourcing and supplier management with A/P, payment terms, and discounting strategies based on the personal observations and experience of a Spend Matters staffer. Today, in Part 2, we conclude with a list of recommendations to take when communicating A/P and discounting policies to suppliers (and the general public) to avoid the type of misunderstanding that surfaced after the P&G debacle.

One of the fundamental challenges of A/P strategy and payment in the past (for organizations of all sizes) is that it has not been a scientific or measured exercise. Thomas’ father used to run Northern European sales arms for various US industrial equipment firms, and he would tell his staff that payments to vendors could only be paid a few days past the end of each quarter, once the firm had settled its books! This was to pull cash to central accounts, and then push it back out. In other words, it was a lot of work and supplier frustration over evanescent paper results.

Old strategies – including old and fundamentally flawed A/P strategies – die hard. This was obviously a silly practice that annoyed suppliers. And the sheer force of it going long past its introduction is testament to how payment strategies muddle through – in this case, the approach was a legacy practice that arose when some “clever” CFO or purchasing head decided to do it to look better “just this quarter” -and then it couldn’t be undone without looking bad in the next quarter’s analyst call.

The rest of this PRO research brief can be found on Spend Matters PRO. If you’d like to become a Spend Matters PRO member, please subscribe. If you’re not ready to subscribe or wonder why you should, we’ve answered some FAQs here or you can email a Spend Matters team member directly. If you’re not into paying for content, we get that too. Thanks for reading!

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