Leak 19 · Suppliers & Procurement - Supplier terms not being captured
A 2% discount for paying in 10 days is a 36% annualized return. Paying on day 30 anyway, or paying on day 12 and missing it, throws that away.
Diagnostic note. Symptoms, the records to bring, and a practical first check with your team.
What is it?
Supplier payment terms include discounts, extended terms, dating programs, and freight allowances that are negotiated and then not reflected in how AP actually pays. The leak is the difference between the terms you have and the terms you use.
- Family
- Suppliers & Procurement
- Primary owner
- Controller
- Secondary owners
- Purchasing Manager, CFO
- Primary impact
- Cash / EBITDA
- Typical data source
- Supplier agreements, AP payment history
- Detection difficulty
- 30-day measurability
Ask yourself
What share of available early-payment discounts did you take last year, and what share of invoices were paid before they were due without a discount?
Yes, partially, no, or don’t know. “Don’t know” is the most useful answer, because it points at the test below.
What does it look like?
Look for these patterns, then use the check below to trace the issue in your own records.
- Early-pay discounts available but taken inconsistently.
- Invoices paid before due date with no discount.
- Negotiated extended terms not loaded into the supplier record, so invoices are paid on the default.
- Freight allowances or prepaid-freight thresholds not applied to POs.
What data do I need?
The minimum viable set. Most of it is already in your ERP.
| Field |
|---|
| Supplier terms as negotiated |
| Supplier terms as loaded in the ERP |
| AP payment history: invoice date, due date, paid date, discount taken |
The initial check
Start with a small sample. Ask the person who owns the records to gather the exports and agreements, then work through these steps together.
- 1Export last quarter’s AP payments with invoice date, due date, paid date, and discount taken.
- 2Count discounts available versus taken, and invoices paid more than five days early with no discount.
- 3Compare the terms in the ERP for your top ten suppliers to the terms in their agreements.
Missed discount = Σ discount available but not taken; early payment cost = Σ (days paid early × amount × daily cost of capital)
Then ask one question: Are the ERP’s payment terms for each supplier the ones you negotiated?
How much could it be costing us?
A conservative range, not a headline. The goal is a number management can trust enough to investigate.
Annual missed discounts + cost of capital on early payments + unused freight allowances
Common root causes
Fixes fall into three layers. Not every problem needs software, and almost none needs AI first.
- Process
- AP pays on a schedule that ignores discount dates, and negotiated terms are not communicated to AP.
- Data
- Supplier master terms are stale or default.
- Technology
- The payment run does not optimize for discount capture.
What should we do?
Start with the simplest intervention that could solve it. Move down the list only if the one above is not enough.
Level 1
Data
Reconcile supplier master terms to agreements for the top 30 suppliers.
Level 2
Process
Run payments on discount dates and due dates, not a weekly default.
Level 3
Workflow
A payment-run recommendation that ranks invoices by discount value and cash position.
Where AI helps
- Extracting terms from agreements and invoices to compare against the supplier master.
Where AI probably doesn’t
Loading the right terms and changing the payment schedule is a controller’s task, not a software project.
Before you call it a leak
- Taking a discount may not be worth it when cash is tight and the line of credit costs more than the discount is worth. Compare rates.
Think this might be happening in your business?
Turn the finding into a next step.
If the numbers say there is something there, send us what you found and we will help you decide whether it is worth a full investigation. No transaction files needed for that conversation.
Related leaks
- Leak 14 · SuppliersMissed manufacturer rebatesRebate agreements live in a filing cabinet. Purchases live in the ERP. The money you earned but never claimed lives nowhere, and it is often the largest single leak on this list.
- Leak 15 · SuppliersMissed volume discount thresholdsBuying 480 units at the 100-unit price when 500 would have earned the next break. Or buying 500 units of something that does not move to get the break. Both cost money.
- Leak 18 · SuppliersBuying the same product at inconsistent costsBranch A pays $14.20. Branch B pays $15.60 for the same item from the same supplier. Or the invoice says $15.60 and the PO said $14.20, and nobody checked.
Let’s start with one thing.
Give your team more time for the work that needs them.
Show us the quoting, order-entry, or follow-up work that keeps piling up. We’ll map it with you and find a practical place to start.
Start with a free workflow conversation with Alex.