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Discover the latest trends in payment terms

August 29, 2017

In recent years, many buyers have pushed to extend the payment period for supplier invoices. In some jurisdictions, this has led to legislation limiting the number of days within which payment must be made.

With this combination of greater political sensitivity and interest rates at a record low , it seems reasonable to assume that the trend on payment periods would be static, or even downward. A current IACCM survey is seeking the answer – and has discovered mixed results.

This article offers early insights, plus the opportunity to contribute to the study and gain access to the report download (click here to access).

Overall, 29% of those responding say that their organization is planning to extend the payment period. For some, the fact that interest rates are so low makes such a move seem less contentious. Others are seeking the short-term boost to cash reserves.

What is the current average payment term?

The current average is 46 days, with either receipt or acceptance of invoice being the most common trigger. Overall, 41% of companies still operate on terms of 30 days or less, with distinct industry variations. For example, in the oil and gas sector 61% operate on 30 day terms. Negotiability also varies significantly, with those imposing tougher payment terms apparently more ready to negotiate.

But the contracted term does not always reflect reality – the actual period between invoice receipt and payment averages 55 days.

Use of third parties and the link to ‘customer of choice’

At 12%, the extent of outsourcing of accounts payable is surprisingly low. A further 23% work with supply chain finance providers, in some cases using this as part of their negotiation of payment terms.

Separate IACCM research has shown that ‘prompt payment’ is the number one issue when suppliers are evaluating their customers. Many in Procurement seem to appreciate this, with 38% deeming it ‘essential’. However, as the survey results show, there is a continuing gap between the importance of timely payment and typical market practices. The final report, which be issued in early September, will explore this aspect in more detail.

To contribute to the survey and receive a copy of the report, please visit https://www.research.net/r/Z7Y6YTQ

 

 

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