Reducing delays of payment for subcontractors

Interview with Claude Predal, Sourcing and Development Director, Global Outsourcing Business Management

ST had a bad image in the subcontracting world because payments were not always made on time.

This situation was not something we intended to happen, but was the result of a system issue. We were raising Purchase Orders (POs) at a level which was too aggregated and the invoices issued by our subcontractors did not always match our POs as they were more detailed, reflecting the reality of the work carried out in their factories.

In the case of a mismatch with the PO, the invoice was rejected and sent back to another internal department for analysis. This was generating a very tedious (and manual) job and was introducing delays in the payment process.

These overdue payments represented, in some cases, significant amounts; enough to be of serious concern for our subcontractors and to pollute our business relationship with them.

We were giving our subcontractors an image of ST as a bad payer which was not in line with our perception of what business ethics should be.

Taking into account that a job done has to be paid in time (and that we, ST, would not appreciate to face the same issue with one of our customers!), we have initiated a program named ‘PO Automation’.

Through a complete re-codification of our data base and development of new programs, we are now able to issue POs including detailed items in line with subcontractors’ invoices.

Now ST’s system is robust enough so we have also been able to initiate a ‘self-billing‘ program, allowing ST to issue the invoices on behalf of the subcontractors who just have to validate them.

Completion of this program is targeted for the end of 2007.

The first results are promising: we have already divided by 3 the amount of overdue payments.

The obvious benefit for us is that we are increasingly able to ‘walk the talk’ and show to our stakeholders, the subcontractors, that ST is fair in business. This can only have a positive impact on our business relationship with them.

An additional positive side effect is that teams from subcontractors and from ST, who were perhaps not used to working together, have had to understand the other side’s constraints and find ways together to solve issues and achieve a common goal.