Spot buying presents challenges to an organization’s procurement team, whose focus on supplier management seeks to discourage maverick spend. While strategic buying is always preferred, spot buying is unavoidable in some circumstances. The typical spot buy situations, which may account for as much as 42% of a company’s indirect spend, are often cases that are driven by three conditions:
- The situation occurs suddenly.
- The event was unanticipated or unavoidable.
- The purchasing action necessary to resolve the issue cannot be delayed, as there are critical operational and cost impacts associated with such a delay (e.g., equipment downtime).
Because of these conditions, buyers in spot buy situations usually find themselves purchasing the needed items from suppliers for which no contractual terms are in place. These terms may force buyers to make immediate payments contrary to established business practices.
Furthermore, spot buy activity can complicate the processing and tracking of payments and the accounting associated with spend analytics, with these non-contractual suppliers causing workarounds and deviations from established processes. As more manual intervention is needed to process these transactions, internal costs can also increase.
Traditional Payment Terms in the Electronics Supply Market
Most electronics suppliers and distributors offer similar payment terms, which often involve one or more of these options:
- The standard 30-day payment term subject to the completion of a credit application and subsequent approval of credit. Some companies may extend this to longer terms, such as 60 days.
- Immediate buy options, with the proviso being that the buyer can usually order immediately, but they must pay by an agreed-upon date or face significant interest charges – often 1.5% a month – for failure to make payment and may also risk withholding of future shipments.
- Buyers agree to make accelerated payment in exchange for discounts on the original invoice value. Examples include 2/10 net 30 and 4/10 net 30.
- The above terms allow for discounts of either 2% or 4% as long as the buyer pays within ten days. Otherwise, full payment is to be made within 30 days with no discounting should the 10-day payment not be made.
- Establishing a proprietary account with the seller, that can enable multiple buyers from a company to place orders, ensuring quick purchasing and a straightforward payment process for all invoices.
The limitation of traditional payment terms concerning spot buying is that these terms mandate the establishment of a relationship between buyer and supplier and the requisite assessment of the buyer’s credit risk before terms can be put in place. This approach can be a lengthy process, and the urgency of spot buy makes use of this method impractical.
Texas Instruments Implements A Spot Buy Solution
In the electronic components market, Texas Instruments recognized the dilemma and developed a solution to the challenges of spot buy that eliminated the friction in the process and solved the payment terms challenge. Partnering with Apruve, providers of a B2B Credit Network, Texas Instruments’ new payment program for their customers allows them to purchase on demand without getting mired down in the details of a manual payment process for spot buy purchases or having to make immediate payments.
Conducted online using proprietary algorithms, the credit score assessment, and approval process is significantly simplified and streamlined. The platform allows users to view purchase history, credit limits, and add or remove members from the purchasing team — and it’s an entirely paperless process.
This tool, in conjunction with other Texas Instruments’ payment features, makes purchasing efficient and worry-free. Those features include:
- 30-day terms on every purchase
- Addition of P.O. number for tracking purposes
- Online invoicing and payments
- Ability to set up buyer and payer purchasing roles
- Ability to order multiple parts using the Express Cart
- Free shipping on orders over $150
- No minimum order quantities and the ability to order up to 9,999 pieces
To learn more or apply for Texas Instruments' easy online procurement solution, click here.