Rethinking Procurement Contract Payment Terms

Procurement is based on one of the oldest systems in human civilization – the exchange of goods for cash or trade.

As a procurement officer, your main motivation is to make sure the goods and services your organisation needs to function are acquired in a cost effective and timely manner, while your suppliers need to get paid for facilitating their side of the arrangement.

This means, when cementing supplier contracts, you need to have payment terms baked in. Failing to successfully negotiate supplier payment terms at the contracting stage can lead to serious problems further down the line, while those organisations which are successful will have a much smoother time of things.

Payment Terms

When discussing procurement payment terms with your suppliers, you may well come across many different options.

Payment in advance, end of month, cash on delivery, net monthly amount, and net 30 are just a few of the terms you might come across and each comes with its own advantages and disadvantages. Payment in advance means there are no bills to settle further down the line, but you need to have the capital in place before placing an order, while net 30 gives you 30 days to pay, but requires more fiscal organisation.

Favourable payment terms will help your organisation maximise cashflow and lower purchasing operating costs, while building trust and confidence between supplier and buyer and putting your business in a far stronger position when it comes to settling disputes.

Rethinking Payments

One concept which is transforming the way payment terms are built into contracts is the rise of source-to-pay solutions.

An umbrella term which encompasses the entire procurement process, source-to-pay brings together all the procurement, supply chain, finance, IT, and legal activities which companies deploy to identify, source, fulfil, and pay for goods and services. However, for this article, we are particularly interested in how it benefits payments and the contracting process.

Source-to-pay goes beyond simple automated payments and supercharges the way your organisation manages payments and contracts. A source-to-pay platform will use powerful AI and automation software to constantly monitor and analyse your organisations supplier contracts and alert you to when a clause or condition within those contracts becomes a negotiation point – helping you focus on a favourable outcome rather than trying to memorise every detail of the contract yourself.

Through this system, your organisation can better provide the right information when onboarding new suppliers, while minimising the risk of not being paid in good time. Receive alerts when it’s time to apply standard net payment terms. Prevent fraudulent or inaccurate billing, which can lead to late or missing payments, and may more features besides.

Final Thoughts

Source-to-pay is a modern payment solution for a modern industry and is just one method innovative procurement teams are deploying to make contracts and payments work together in harmony.

Automating the processes which normally eat into the procurement workload will reduce errors and free up time and resources for negotiating the best arrangements with your suppliers.