Businesses increasingly rely on third-party vendors and contractors to supplement their workforce, expand their capabilities and serve customers. The benefits a company realizes as a result of leveraging a range of third-party vendors are undeniable, yet doing so doesn’t come without risk. If payments, agreements and approvals aren’t properly managed, the business can be at risk of leaking money, missing opportunities and tarnishing relationships.
To keep vendors and contractors happy, businesses need only look more closely at a single business function: approvals. Why? Because failure to meet a vendor’s payment or other approval requirements will result in slow project progress, complete stoppage or the loss of an important vendor relationship altogether, which creates a domino effect inside the organization. More often than not, the speed of contractor payments will have a direct impact on the business.
Fees resulting from late payments
Regardless of whether the control point is a purchase order or an invoice, most transactions with vendors are guided by strict payment terms (common terms include “net 30” or “net 45”). If the organization misses the payment deadline because the invoice was held up in layers of internal approvals, there are often hefty fees associated with late payments, or for payments that are missed entirely. While a 2 -percent to 5-percent fee may not seem like a huge deal in the short term, if the organization is late on payment each month for multiple vendors, it certainly adds up. As it’s not uncommon to see a mid-sized business with more than 100,000 purchase orders each month, late fees that total thousands of dollars each month aren’t out of the question.
Savings associated with early payments
Just as common as late fees for missing payments are payment incentives that are associated with early payments. If an invoice were to read “3/15 net 45,” the vendor is offering a 3 percent savings for paying within 15 days. To get these payments pushed through the system, speedy approvals are of the utmost importance, and with approvals stacking up in senior leaders’ email inboxes, it’s sometimes difficult to realize these savings. For businesses that are agile and can take advantage of these types of payment terms, it could translate into a large financial advantage in the long run.
Lost time looking for a new vendor when payments fall through
In business, time is money. That’s especially true when working with third-party vendors. Typically it takes weeks, if not months, to onboard a new supplier or contractor. And, when you’ve lost a contractor due to a missed payment in the middle of a project, that month feels even longer. When you add up how much work could have been completed in the month spent on onboarding with how far behind your team is on the project they were supposed to deliver - on top of the fact that the contractor could even now be working for your direct competitor - the importance of quick approvals becomes extremely apparent.
Make enterprise approvals easy and win with vendors
In a recent survey Capriza conducted, 98 percent of IT leaders strongly agreed with the need for a mobile-friendly approvals experience. Additionally, 94 percent requested that approvals be accessible in the systems their employees were using on a daily basis — Slack and Microsoft Teams — instead of systems they might be less familiar with, such as SAP and/or Oracle. Bottom line: don’t make approvals difficult for decision makers. Empower them with a mobile-friendly enterprise approvals platform to speed decision making and save your procurement team time and money.
Managing third-party vendor relationships shouldn’t be complex or expensive. In fact, they can be made better by simply improving a single function. With the right system in place, your business should be able to reduce potential risks associated with vendor loss and capitalize on incentives you’re currently missing out on. A reliable system for approvals and vendor management in addition to open, honest communication and clarity in expectations will result in positive, lasting vendor relationships.
About Dave Charlesworth
Vice president of Sales at enterprise approvals platform Capriza, Dave Charlesworth is a seasoned sales executive, leader and strategist. An expert in building business relationships, Dave combines his sales experience with a deep understanding of high-tech software to solve common business problems for the enterprise.