Supplier Fees Hurt Your Supply Chain

April 17, 2013 Martin Quensel

headacheProcessing invoices can be costly. The suppliers billing process; sending an invoice, processing the incoming invoice on the buyer side and finally settling it, is adding additional costs to the products or services delivered. Traditionally, everyone was swallowing their part. In the electronic invoicing world it seems like most of the electronic invoicing providers understand their business as the postal service replacement, and charge suppliers for submitting an invoice to their customer. There are also operators out there charging suppliers a percentage of the invoice amount, which could be already quite expensive.But there is an even more extreme case ( I read recently and could not believe it. They're charging their suppliers for paying them with a "settlement discount":

  • 3pc of the invoice value for paying within 60 days
  • 4pc of the invoice value for paying within 30 days
  • 5pc of the invoice value for paying within 21 days

Of course this has an immediate, and quite positive effect on margin and profits, but strangling suppliers like this will hurt, if not destroy the buyer’s supply chain in the long run. I’ll tell you why.

  • First, there is the psychological effect: suppliers will hate doing business with such a customer.
  • Second, discounts like this have a dramatic price effect and impact the suppliers margin; suppliers would have to price it in to survive. Since these are general terms and conditions, all suppliers will be forced to increase prices.
  • Third, suppliers will be forced to charge now for everything and will become quite innovative in developing new fees and charges to compensate for the increase (freight, packaging, insurance, payment method, accounts statement, …).

And most importantly, suppliers will look for alternatives and more business with other or new customers. They will no longer share their latest and best product ideas or product development plans. All goodwill disappears. They will select other customers, and most likely competitors in the future. This will jeopardize the future of the entire business.

Are there alternatives? Yes! Do the opposite, be a partner, develop the relationship with your suppliers for continuous and sustainable success. Offer e-invoicing for free and give suppliers the choice if they want to use a fair financing or not. Here is the model we believe in and which we've helped our customers reap huge benefits. See how PG&E saved $70M in the last two years while strengthening supplier relationships:

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