2023.10.04: Timely Payments and Public Procurement

Original article published on Linkedin by Dustin Lanier, CPPO

Our approach to vendor payments is not just a finance issue - it has a direct impact on the success of our procurement activities.  In this article, I will delve into the top 7 reasons why making prompt payments to vendors should be a regular topic of interest in public procurement:

Preserving Supplier Relationships

Consistently paying vendors on time fosters trust and strengthens long-term relationships, making vendors more willing to collaborate on future projects, and also more willing to consider changes or adjustments in the spirit of partnership when such changes might be needed.

Enhancing Reputation for Future Solicitations

A reputation for prompt payments makes public agencies more attractive to vendors, increasing competition and leading to better value for taxpayers in future solicitations.

Sustaining Vendor Cash Flow

Timely payments ensure that vendors maintain healthy cash flow, allowing them to cover operational costs, invest in growth, and meet financial obligations promptly, which is critical to helping them fulfil contract commitments.

Supporting Emerging and Set-Aside Vendors

Timely payments are particularly crucial for small and diverse businesses, such as women-owned or minority-owned enterprises, providing them with the financial stability to thrive, especially new enterprises that often do not have the benefit of a large cash reserve.

Mitigating Legal and Regulatory Risks

Delayed payments can result in costly legal disputes, penalties, and damage to the public agency's credibility, affecting its ability to procure goods and services effectively.

Promoting Economic Development

Timely payments stimulate economic growth by bolstering the financial health of local businesses, leading to increased job opportunities and tax revenue.

Minimizing Supply Chain Disruptions

Late payments can disrupt the supply chain, leading to shortages, production delays, potential interruptions in critical public services, and lower willingness of vendors to maintain needed stock.

The consequences of chronic slow payments can be far-reaching, affecting everything from vendor relationships to the reputation of the public agency itself. By recognizing and addressing the significance of timely payments, public procurement can become more efficient, cost-effective, and supportive of economic growth and innovation.

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