Trends in Payment Terms
Published: 18 Nov 2019
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Author: Tim Cummins
IACCM has today issued the results of its latest survey into payment terms. This multi-jurisdictional, cross-industry study attracted input from 393 organizations and gathered data from the buyer community, therefore reflecting terms and policies in business-to-business transactions.
Highlights
Compared with IACCM's previous survey in 2017, there are three items of particular note:
- The trend towards increasing payment periods appears to have reversed
- Delays in payment have reduced by a significant amount
- The use of third parties – for example, supply chain finance or outsourced accounts payable – has stalled
Summary of Findings
Across all participants, the average contractual payment term specified by buyers is 43.5 days (an improvement since the last survey in 2017, when the average was 47 days). A 30 day payment period remains the most common, specified by 53% of respondents. The trend observed in 2017 towards longer payment periods appears to have stalled and, in some cases, reversed. Reasons cited include the impacts of regulation (particularly within the European Union) and reputational damage from adverse publicity.
On average, late payment occurs in 19% of transactions. This results in the average actual payment being 47 days (again, a significant improvement on 2017, when the average was 55 days). A further factor in this reduction is that a number of organizations have reduced their payable period.
26% say the payment period is non-negotiable. As in the last survey, the readiness to negotiate increases among the organizations with longer payment periods.
68% of respondents operate with consistent standards across worldwide operations, though for 46% that standard may differ across different types of acquisition.
Just under 20% are currently planning to change their payment terms and of these, almost 2 in 5 are considering a reduction in the payment period.
In terms of use of external resources, only 10% have outsourced accounts payable. 20% have introduced supply chain finance and almost half of these did so in conjunction with an extension in payment terms. The percentage offering supply chain finance has not altered significantly since 2017.
Conclusions
In general, the survey results suggest that the trend towards longer and more onerous payment terms has either ended or is in abeyance. At the same time, there appears to have been a strong focus on improving efficiency through automation, resulting in more timely payment of invoices. The fact that a significant proportion have either reduced or are considering a reduction in the payment period suggests increased sensitivity to regulation, reputation, and issues such as supplier loyalty.
A copy of the full report and survey findings is available to members in the Resources section of the IACCM website at http://www.iaccm.com
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• ATCO Electric
•
2019-08-06 16:55:45
We have moved some of our Procurement & Construction projects from progress based payment to milestone based payments. The major reason was to motivate contractors to expedite milestone achievement, and get paid faster. However, we found that most of the time delay had come from owner, consultant, designer or suppliers (not under contractor). In those cases, contractor resisted to get paid nothing, for not their mistake. We had to amend few contracts to move back to progress payments, or we had to breakdown milestones into smaller units. For few projects, it went smooth and milestone payment were successful. So you may have to see what you can offer and what are your limitations, before introducing this change. A survey feedback from your routine contractors can also be helpful in decision making.
Replies: 1
• SirionLabs
•
2019-12-06 07:18:13
medium.com/dealsign/are-you-familiar-with-the-concept-of-contract-value-leakage-53bbe1742d73
A good read thorugh
Replies: 1
• Ministry of Defence
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2019-10-22 09:16:51
I think that the consideration was already made via the original agreement. The variation is a change to the original. So, in my opinion consideration has already been made. This relates to my experience in English Law only.
• Legal and Commercial Training Limited
•
2019-10-25 06:42:02
In some jurisdictions (such as England and Wales) a contract requires 'consideration' (in addition to offer, acceptance and intention).
A variation of a contract is itself a contract - that is, an agreement to vary the original contract. Therefore, a variation will require consideration.
However, it may not be essential to expressly refer to 'consideration'. Consideration is an exchange of promises of value. When parties agree to vary a contract, the consideration can be found with both parties promising to carry on performing the contract as varied.
Having said that, if there is ever any doubt whatsoever as to the presence of consideration, it is always preferable to state clearly what the consideration is. Or (in English law) you could execute the document as a deed.
• NA
•
2019-10-30 20:41:39
In the wording of your example, not only the price to be paid for the variation is set but also the terms and conditions or description of the variation is set: 'in accordance with the arrangements set out in this Variation Agreement'. In this case, I understand it as an option to choose: either the original contract, either the modified terms and conditions which works with a different price.
You may offer a variation without any additional cost any time the change to consider does not impact the resources, time or cost of the considered project; or whenever the parties have planned a variation mechanism or tolerance and already included it in the initial price and defined the scope of such authorized variation.
• Tata Consultancy Services (TCS)
•
2019-11-01 05:14:17
Thanks a lot Graham,Michael and Anne for sharing your inputs on this topic.
Best Regards,
Anirban
Replies: 4
• Legal and Commercial Training Limited
•
2019-10-25 07:13:07
NOVATION. A contact is between A and B. The contract is to be notated to C. This will require a try-partite agreement so that A and B and C will all have to agree. The effect of the novation is that A, B and C will agree that in future the contract will be effective as between B and C (with A no longer a party). A novation will, therefore, transfer to C the benefit and the burden of the contract
ASSIGNMENT. A contract is between A and B. A intends to assign the contract to C. The is a bi-partite agreement between A and B. A will assign the contract to C.
However, A can only assign the 'benefit' of the contract and not the 'burden'.
For example, if, under the contract, A is to to provide services to B and B is to provide benefits to A, the effect of an assignment will be as follows: B will be required post-assignment to provide the benefits to C. However, A will still be contractually obliged to ensure that the services will be provided to B. So if C does not provide those services to B, B will be able to take action against A.
Therefore, A will have assigned the benefit but will remain liable for the burden. Therefore, when A assigns the benefit to C, A will require C to give A an indemnity for any non-performance by C.
• Tata Consultancy Services (TCS)
•
2019-11-01 05:00:51
Thanks a lot Michael for such a clear explanation.
Replies: 2
• Ministry of Defence
•
2019-10-04 08:36:12
Try any of these?
Institute of Business Ethics www.ibe.org.uk/
International Labour Organization on child labour www.ilo.org/ipec/lang-en/index.htm
Ethical Trading Initiative www.ethicaltrade.org/
UN initiative for businesses who want to align their operations with ethical practices www.unglobalcompact.org/
Replies: 1
• IACCM
•
2019-09-06 23:23:45
Terms are basically things that we agree to do or not to do. For example, a Tenant agrees to pay money for rent, while the Landlord agrees to let the Tenant occupy the property in return. Or a software company will let you use their software for a predetermined amount of time.
Conditions are items that must be satisfied before the transaction becomes binding upon the seller and the buyer. Or after signing/award, the conditions can be items for dissolution of the agreement.
For example, some buyers insert a condition for due diligence that allows the buyer to verify all important details before committing to purchase.
Or if you fail to deliver on or stick to what was agreed, the conditions can spell out how the contract will be terminated.
•
2019-09-10 13:03:51
Thank you, Mark for explaining it with examples.
• Legal and Commercial Training Limited
•
2019-10-25 07:28:18
The words "Terms and Conditions" are likely to mean nothing more than 'the provisions of the contract'.
However, if the word "condition" is used in the contract, then it could mean that the particular provision is a 'condition' (in the legally technical sense) in that the term is fundamental to the contract. If such a 'condition' is breached, then the innocent party may terminate the contract. A term of a contract may be a 'warranty'. This is a less important term, breach of which will enable the innocent party to claim damages.
The aim that we should be seeking to obtain with contracts is to be as clear as possible and not to rely on a court deciding that you have used 'condition' or 'warranty' in a technical sense.
For example, if the date of delivery is vitally important, you could state that it is a condition but it is better to state that time of delivery is "of the essence". This phrase will mean that the term is indeed a 'condition' enabling the innocent party to walk away and claim damages and obtain the goods elsewhere. If you are agreeing to deliver the goods, you should state the opposite, namely that time of delivery is not of the essence. If you do not and if you are one day late, the other side can walk away. Or you could state that time of delivery is an estimate and that you will use all reasonable endeavours to deliver the goods by that date.
The above is the position in English law.
• Legal and Commercial Training Limited
•
2019-10-25 07:33:08
I would add that Mark is not incorrect in his description of a condition. He is referring to yet another meaning given to 'condition'. Mark is describing a 'condition precedent' which is, as he states, a condition that has to be satisfied prior to the rest of the contract becoming effective. To add some complication, there is also a 'condition subsequent'. This means that the contract is enforceable but will cease to be so if a condition occurs.
Rather than rely on the difference meanings, we should remember that a court will interpret a contract by asking itself what the parties meant when they used the words in the contract. A court will strive to give those words their usual meaning. So, rather than rely on a suspected legal meaning of a word, you could use clear and usual language to state what the deal is and what the contract means.
Replies: 4
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