- The European Commission announced a ban on certain "unfair trade practices" in the food supply chain, as part of a broader effort to support small and medium-sized businesses that are more negatively affected than big business by such practices.
- Late payments, last minute order cancellations and "unilateral or retroactive changes to contracts and forcing the supplier to pay for wasted products" are some of the primary practices banned.
- The commission wants member states to delegate enforcement of the ban to a local public authority, according to the press release.
Far too many companies bully suppliers by playing games with invoices, payments and capricious contract changes that put companies in the supply chain at risk. The practice is far more widespread than just suppliers in the food supply chain, which are typically small businesses handling perishable items.
It's not just the mega companies who have the potential to hold suppliers hostage; it is any sized supplier with ill intent, poor payment processes or disrespect for the supplier community.
Show me a company that takes pride in paying their suppliers on time, and I’ll show you a company that respects both members of the supply chain and their own employees. No matter the relationship between the buyer and seller, the supporting departments need to complete their end of the bargain.
The "you are on credit hold" calls that every buyer experiences at one time or another can be the result of an error of omission such as a botched invoice, a lack of cash or a financial strategy that feasts on suppliers.
I’ve worked for both.
One large multi-national treated suppliers as necessary evils. They would change payment terms to suppliers on a regular basis and only grudgingly tell the procurement department that payment terms were changing. This put small suppliers at risk, whose 30-day terms were extended to 60 days or more.
And if the supplier offered prompt payment terms, the company took them and still paid in 60 days, forcing the supplier to petition accounts payable for the lost discount. Those conversations did not go well, and supplier performance went down the tubes as a result of this treatment.
It was certainly tough to keep supplier relationships positive in this environment.
But another large multi-national had a great respect for the supplier community, communicated directly from the C-suite. Suppliers were not only paid within terms, prompt payment terms were strongly negotiated and encouraged. Finance and accounts payable were available and proactive in solving problems.
Strong supplier relationships, supported by living up to obligations, created excellent supplier performance and a trusting environment. Procurement folks were happier as well, knowing that the company supported their work.
At the end of the day, suppliers want to be paid fairly and on time. So do employees. The very people making decisions that harm suppliers would have a conniption if their own pay was withheld, late or inaccurate.