Image credit: Zazzle
In the first installment of this series, I began by suggesting that I don’t buy in to the fact that there is a moral dilemma to push out supplier payment terms. But I quickly got sidetracked and began to explore the potential and challenge of early payment discount programs offering an alternative approach and thereby representing a potential win/win strategy for both buying organizations and suppliers that has yet to achieve critical mass inside any company that I’m aware of (except those that have moved to P-card driven approaches for the majority of their spend). However, I think it’s worth exploring the absurdity of even positing the option of extending payment terms as a moral hazard.
Far too many things I’ve read about payment term extensions in the past paint the issue as fraught with negativity, suggesting that organizations opting to pursue such A/P approaches are somehow less moral than others. But I don’t see it this way at all. I believe that the decision to extend payment terms is calculated business one that sometimes makes complete rational sense (e.g., take the example of an organization that is willing to jeopardize the potential to get the best possible pricing from a supplier for the opportunity to improve working capital to prop up its cash position and credit rating). But all too often, such a decision in a vacuum represents a bone-headed move suggested by treasury or outside consultants, given how suppliers nearly always find ways to minimize the impact (e.g., price increases or pre-dating invoices)…
