Purchasing managers still reach for that checkbook

By Brian Milligan -- Purchasing, 11/2/2000

Most purchasing managers are getting out their checkbook when it comes time to purchase supplies.

"You can negotiate terms, extend payments and take credits when you are paying by check," says one buyer. "Credit cards are used for one-time purchases and when that is the only method the vendor allows."

And while credit cards are still popular, procurement cards may not be, according to a recent Purchasing Magazine survey. But that could change as B2B e-commerce becomes more popular.

Many traditional ways of paying for supplies remain ever popular, but change is on the horizon. It is change that is being brought on by a growing interest in Web-based ordering. And it will usher in new forms of payment, many say.

Purchasing Magazine conducted the survey to gain a clearer understanding of how purchasing professionals are buying. The survey provides further evidence that the methods of paying for supplies are changing in the electronic age.

Payment methods

Participants were asked to note the methods they use to settle corporate purchases, and to explain to what extent these methods are used. Many chose up to three or four different methods of payment, ranging from cash to direct debit to credit cards and checks. They also chose from procurement cards, trade credit and counter trade.

Most of those who answered the survey showed a preference for traditional or standard methods of payment. This means a preference for time-honored purchasing methods involving checks or credit cards. And to a lesser degree, procurement cards.

Eighty-eight percent say they are using checks to pay for supplies. This was followed by credit cards, at 42%.

Many who prefer paying with checks say they choose it because it makes the buying process easy. They say the payment method works well with their companies' accounting and bookkeeping systems, and allows for easy purchase processing.

"Checks are easy because of the SAP system," says one buyer who notes that 95% of his purchases are done by check. The buyer also uses credit cards and cash to buy supplies.

But not everyone agrees. In fact, some buyers hint that they are not all that thrilled with using checks to pay for supplies. They suggest there could be more efficient, easier methods of paying for goods.

"Our corporate office is resistant to any other method," says Chizelle Gates, a buyer for the Texas-based Research Analysis and Maintenance Inc. Gates says 97% of her purchases are paid for by check, while the other 3% are paid for by credit card.

"I can't negotiate otherwise," says Gates.

"It's not a preference, it is tradition," agrees one materials and purchasing manager. The manager says 100% of his purchases are paid for by check.

Procurement cards

Those who participated in the survey gave equal billing to direct-debit and procurement-card purchasing. Twenty-three percent of those who took the survey say they use these methods to pay for their supplies. Many of those who prefer direct debit say it comes in handy because it allows purchases to be easily recorded or traced.

But while 23% seems relatively low, not everyone is ready to give up on procurement cards, which some analysts say may see a revival as e-commerce becomes increasingly prominent. Some believe that B2B e-commerce will stimulate the use of purchasing cards because it is the best payment method for e-procurement at this time.

"We are rapidly approaching the point where we will be using a procurement card for about 25% of our purchases, but the program is not yet in place," admits one buyer.

Only 12% of those who responded to the survey say they use cash to pay for supplies. And only 15% say they use trade credit.

But some of those who rely heavily on trade credit say this remains an important, dependable method of payment.

"Traditional/trade credit remains the standard with our suppliers," says a senior buyer from a machining company in the medical/aerospace industries. The buyer says 75% of his purchases are made through trade credit.

"Most are then paid by invoice or monthly statement by check," the buyer says. None of those who responded to the survey use counter trade to pay for supplies.

Some say they are using other methods to pay for supplies. Purchasing managers noted purchasing orders and wire transfers as ways for purchasing the things they need.

"EFT is beginning to take off," observes Angelika McCoy, vice president of finance and administration for the Ohio-based Rudolph Bros. & Co. "There is no history yet on many corporate accounts."

Possible change

Most of those who took the survey say they don't believe their purchasing practices will change much. Fifty-four percent of those surveyed believe their practices in this realm are not changing.

But the possibility for purchasing practice change is definitely out there. Forty-six percent do believe their practices are changing. Some say this is directly due to the growing influence-and temptation-of B2B e-commerce.

"We have been doing it this way for years," says one maintenance purchaser who says 95% of his purchases are done through trade credit. "But we are now looking at e-procurement."

Some openly welcome this change. They say the system is in need of an overhaul and that today's methods of payment have got to be replaced.

"I do not prefer the current method of payment," says one purchasing manager. The manager says he uses checks and procurement cards to pay for supplies. He says the system needs to change, as a greater dependence on B2B e-commerce continues to emerge.

"My desire is to move toward EFT payment and Web-based commerce," says the manager.

Some say this change can't come fast enough.

"Check payments will continue to be reduced and EFT will take its place," theorizes Michael Williams, vice president of purchasing for Sappi Fine Paper North America.

"The trend is toward credit card purchases becoming more popular with the use of e-commerce," agrees another buyer.