Suppliers are part of your business

Roger OakdenProcurement

It costs to get paid.

Outsourcing the work of accounts payable is not uncommon, but I recently read of twist in the story. The service provider to whom a government owned commercial operation has outsourced its AP is charging suppliers 15.5c per $100 of invoice value as a processing fee!

Here is another example of what has always been the true situation in business – to make a profit. Forget all the weasel words like partnership; at the end of the day, if a weak supplier can be made to pay, then so be it. We can be assured that large and powerful suppliers will not be charged the processing fee and smaller but critical suppliers will add the fee into their invoiced charges. It will be the small suppliers in a weak negotiating position that will pay and have to absorb the charge.

On the other side of the coin, I did not read that in exchange for paying the processing fee, invoices would be paid in full and on time. Why, because the government owned commercial operation considers itself in a powerful bargaining position and therefore can delay payments when and if it desires. My experience of supplying to government departments is that this is a common attitude.

Of course, the downside is that potential suppliers with good products and services do not bother to tender against contracts, therefore governments miss out on obtaining the best value through having to rely on a restricted pool of supply.

I can understand the outsourced AP services supplier trying to charge a processing fee as, no doubt, they negotiated a low margin contract. My concern is the attitude of the principal business. The cost of paying suppliers is a cost of doing business; what is required are effective and efficient processes developed by the business and its suppliers to minimise those costs. Charging suppliers means that no improvements will be made.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...