Despite all the progress, why are prompt payments so rare?

Despite all the progress, why are prompt payments so rare?

Posted by Ian Burdon in AP Automation, Dynamic Discounting, e-invoicing, e-Procurement, Purchase to Pay, Purchase to Pay Process 19 Jun 2012

How can a banjo frailing ballad singer in Appalachia operate a more modern business model than a government department?

Imagine that I am a finance director in the UK with personal tastes which run to “roots” music. Even for relatively obscure artists in any genre and any country, I will probably be able to find a website either for them or a distributor and buy their music directly as a cd or as a download. I will pay with my credit or debit card and get my cd a week later or my download almost immediately. The artist will get paid relatively quickly and pay a merchants fee which they will have factored into their original pricing.

What I will not do is raise a requisition for the cd, have it approved and then issued to the artist, create and issue a goods received note when the item is delivered and approved, match the ensuing (paper) invoice against the receipt and the order and then promise the artist that I’ll instruct my bank to pay them 30 days thereafter.

Yet, when I go into work the next morning, guess which process I will insist that my organisation uses?

Purchasing Insight logoThere are several factors at play here, including the assorted regulatory demands made on business. But they do not tell the whole story.

When we look at a transaction we see something very simple happening: there is an exchange of value. We can think of the exchange as two matching demands, in this case a demand for a commodity balanced by a matching demand for payment.  Around this exchange we want to build other requirements directed towards being able to prove what happened in the event of disagreement or for the avoidance of fraud.

The question we should be asking is how the transaction should be conducted and the requirements for evidence met when the dominant technology is no longer paper? Online purchasing in the consumer market definitively establishes this as a substantial shift in the social norm, so why is it not in the business world and particularly public sector business where so many specifications which are issued seem to say “we want to do exactly as we have always done but do it on screen”?

Pondering this also raises awkward questions for current developments in the e-procurement market which look like regressive reinforcement of the status quo disguised as progress.  For example the notion of Dynamic Discounting is fundamentally based on the idea that a supplier will accept a discount for the benefit of being paid “early”. This rather begs the question of why they should have to wait to be paid at all.

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