What are long-tail payments?
“In purchasing, long tail means the type of purchase that isn’t directly linked to the company’s core business and constitutes the final part of the ‘tail’ when it comes to how purchase expenditure is distributed,” says Erik Hallmén, B2B Payment Specialist at AirPlus. He continues:
“So these are small purchases from many different suppliers that the company doesn’t have an established relationship with, but which are often necessary for the business to function – such as office supplies, software and marketing.”
What is the challenge of long-tail payments?
Many companies have a good overview of their large, recurring suppliers and control over their dealings with them – they have existing agreements with them and often automated procedures, making processing convenient and cost-effective.
Long-tail payments, on the other hand, are made to occasional suppliers, often without established procedures or agreements. Each new supplier requires manual processing – from credit rating to invoice management.
Also, the EU has put forward a proposal to tighten up requirements for the timely payment of invoices*. If the legislative proposal becomes law, it means that companies will need to have effective processes in place or risk invoices falling due, driving additional costs through late payment interest and late fees.
“Many companies spend unnecessarily large amounts of time dealing with new, small suppliers,” says Erik Hallmén. “They use the same extensive processes for these as they do for their larger, established supplier partnerships, which is both time-consuming and costly. Other companies have no procedures at all, which increases the risk of losing control and breaching laws and regulations.”
The key is to have a clear and simple card policy describing how corporate cards should be used
What is the solution?
“The key is to have a clear and simple card policy describing how corporate cards should be used in the organisation, and to set up a convenient process for expense management,” says Erik Hallmén. He continues:
“Also, use virtual corporate cards, customised for all your centralised purchases, for example for recurring software subscriptions. Then there are suppliers who don’t accept card payments and for these, there are solutions enabling you to still pay your invoices using corporate cards.
All these purchases are then gathered in a single invoice, which simplifies administration and control.”
* Read more about European Commissions Late Payment Regulation (pdf)
Did you know that...
it costs an average of EUR 500 for a company to bring in a new supplier and another EUR 200 for annual maintenance of the data in the supplier system?
Source: Cost estimates provided by Mastercard’s Sourcing Team
