Each institution will have its own policy for paying invoices and this will normally only be after the receipt of the correct goods and services. There is a legal requirement, under Late Payment legislation, to pay suppliers within the time period agreed under the procurement contract. Where such terms have not been expressly stated, this is normally taken to be payment within 30 days of the invoice date. The supplier is entitled to charge interest on outstanding amounts due beyond the agreed payment period.
There may be circumstances in which it may be advantageous to make an earlier payment of part of the amount due.
Advance payments
Making advance payments (for example, a 20% payment with order) can put the institution's funds at risk and there is often very little chance of recovering the money if the supplier becomes subject to receivership or liquidation. Here there is no linkage with performance or potential transfer of ownership rights on making the payment. The best protection for the institution is to ask for a Banker's Guarantee to cover the requested amount. The guarantee will remain valid until the supply of the goods or services has been completed and will ensure a full refund of monies paid in the event of non-performance of the contract.
Progress related or stage payments
Alternatively, it may be advantageous to make progress related payments that are linked to pre-determined milestones within, for example, larger projects such as building contracts. Here payment is tied to the demonstrable achievement of agreed milestones. These should be truly representative of progress being made by the supplier and the amounts agreed against the milestones should be a genuine reflection of the supplier's expenditure to the relevant point in the programme. The milestone descriptions and amounts should be agreed prior to awarding the contract. A Banker's Guarantee, in the form of a performance bond, can be demanded against each payment or a 'Certificate of Vesting' required which, under the official seal of the supplier, vests the property of the work carried out by the supplier to the ownership of the institution.
Retentions
In some procurement exercises, it is standard practice to hold back a sum (a retention) to maintain at least some incentive to ensure the contract’s completion. The value of the retention should be a significant amount (usually in the region of 10 - 15%) and held back until the end the buyer is satisfied with the goods or services provided.
Departments are strongly advised to seek advice from the Head of Procurement on the use of part or pre-payments.
Tagging this document or page with a word will add that word to the search terms for finding this page
You can use the above rating system to highlight how useful this content was to you
Comments