What is a Vendor Payment? (Definition, Importance & Best Practices)

If you’ve ever accidentally been late to pay a vendor, you know how quickly that can spoil your relationship with a valuable member of your facilities management community. An occasional mistake might be excusable, but anytime there is a pattern of errors, you end up jeopardizing the success of your facilities. 

Vendor payments need to be timely, accurate, and consistent. This Fexa guide offers an overview of the importance of effective vendor payment processes, with an understanding of the common challenges that facilities managers face. Let’s talk about how to overcome those challenges through best practices and supportive facilities management software.

What are the best ways to optimize your payment workflows, and how can a flexible CMMS help you stay on top of a complex, multi-site network of vendors and work order fulfillment? Fexa is ready to explain how your vendor payment system can provide you with a competitive advantage. 

What are Vendor Payments?

In the world of facilities management, vendor payments are any transaction paid out to a service provider/contractor in exchange for services, materials, and expertise. Unlike payments that go directly to employees of the company, vendor payments go to third parties. 

Vendor payments often go to plumbers, electricians, carpenters, appliance repair technicians, HVAC-R technicians, masons, welders, general construction workers, painters, and other contractors. 

Types of Vendor Payments in Facilities Management

Because there are countless types of work orders that can go out to vendors in the facilities management world, there are also many different types of payments. The set-up is different for a recurring payment for a contractor who services your HVAC system on a quarterly basis than for an emergency plumber who shows up late at night and stops a flood from destroying the location’s inventory! 

Some of the types of vendor payments you might be responsible for include: 

• Regular service payments: Recurring payments for scheduled maintenance services such as cleaning, landscaping, or HVAC servicing
• Emergency repair payments: One-time payments for urgent repairs or emergency services
• Material and part reimbursements: Payments covering the cost of materials, equipment, and replacement parts
• Project-based payments: Payments for larger renovation or improvement projects, often involving multiple service providers
• Retainer fees: Regular payments to keep specialized service providers on standby for priority service

Understanding the Vendor Payment Lifecycle 

The vendor payment process typically follows a structured lifecycle. Your CMMS platform should manage this lifecycle so that you can automate as much of this as possible!

1. Work order creation: A maintenance need is identified and a work order is generated
2. Vendor assignment: The appropriate service provider is selected and assigned to the task
3. Service completion: The vendor performs the required service and documents their work
4. Invoice submission: The vendor submits an invoice detailing the services provided and associated costs
5. Invoice review and approval: Facilities managers verify the invoice against the agreed-upon terms and the completed work
6. Payment processing: Once approved, the payment is processed through the organization's financial systems
7. Payment reconciliation: The payment is recorded and reconciled in both the facilities management and accounting systems

When you review that list, you can see all of the opportunities for things to go awry. If any step in the process fails, the whole system starts to fall apart for that vendor. The vendor probably doesn’t care if the problem is caused by duplicate work orders, invoice receipt issues, delayed invoice review processes, or payment problems. They care about the fact that they’re not getting paid for their work! 

Why are timely vendor payments important when it comes to Facilities Management?

There are two main reasons why your vendor payments need to be perfect: contractual obligations (liability issues) and relationship-building. If you fail to fulfill your contractual obligations, you open yourself up to costly lawsuits. If you are technically within your contract but your payouts are inconsistent, delayed, or initially incorrect, you’re going to end up damaging your relationships with vendors---vendors you need to keep your operations running smoothly!

Vendor payouts build better relationships 

The foundation of effective facilities management lies in strong, reliable vendor relationships. In our view here at Fexa, relationships are the cornerstone of a successful approach to provider management. 

When payments are consistently prompt, vendors are more likely to:

• Prioritize your service requests over other clients
• Respond more quickly to emergencies
• Provide higher quality service
• Offer more flexible scheduling options
• Share valuable insights about potential maintenance issues

Delayed payments can disrupt service continuity, which is particularly problematic for multi-location facilities operations. When vendors face cash flow issues due to late payments, they may:

• Postpone scheduled maintenance visits
• Delay ordering necessary parts
• Reduce staff allocated to your projects
• Deprioritize your service calls
• In extreme cases, suspend services entirely

These disruptions can lead to cascading maintenance issues, extended facility downtime, and significant operational challenges.

A vendor who knows they'll be paid promptly and fairly is more likely to go above and beyond, helping you maintain optimal facility conditions. Keep in mind that the vendor community is small. Word spreads quickly, and when companies get a reputation of inconsistent payouts, they often struggle to find high-quality contractors to address ongoing or emergent maintenance needs. 

Vendor payouts keep your facilities operations running smoothly 

When your payouts are accurate and consistent, your overall operational efficiency stays on track! 

These are just a few of the benefits of a vendor payment system that is running smoothly: 

• Reduced administrative overhead 
• Time for focusing on strategic tasks rather than payment issues
• Less time resolving payment disputes
• Improved resource allocation 
• A more efficient maintenance ecosystem 

This efficiency translates to lower costs, better maintenance outcomes, and improved facility conditions.

Vendor payouts contribute to better financial planning 

Timely vendor payments support better financial planning and cost control by:

• Providing accurate, up-to-date information on maintenance expenses
• Enabling more precise budgeting and forecasting
• Reducing the risk of late payment fees and penalties
• Creating opportunities for early payment discounts
• Facilitating more accurate tracking of maintenance costs per asset or location

With a clear understanding of payment patterns and trends, facilities managers can make more informed decisions about resource allocation and maintenance priorities! 

What are the common challenges in managing vendor payments?

If you have found yourself thinking, as you read this guide, “Yes, but how do we actually get our payment system to run more smoothly?,” then this section is for you. You already know that vendor payments are important, but you’re running into issues. 

Let’s diagnose some of the vendor management problems you’re experiencing so we can talk about how to fix them. Understanding why your vendor payment system is failing is the first step toward developing solutions that will work.

Issue #1: Your work orders are manual or your systems are disconnected. 

One of the most significant challenges in vendor payment processing is over-reliance on manual processes. 

Here are some examples of where this can go wrong: 

• Manual invoice processing: Generating and processing invoices manually is time-consuming and error-prone
• Disconnected systems: When facilities management and accounting systems don't communicate effectively, payment delays and errors are common
• Paper-based workflows: Physical paperwork can be lost, damaged, or delayed, causing payment processing bottlenecks
• Duplicate data entry: Entering the same information in multiple systems increases the risk of errors and inconsistencies
• Inefficient approval chains: Complex or unclear approval processes can significantly delay payments

These manual approaches not only slow down payment processing but also increase the administrative burden on facilities management teams. 

Our best solution: Choose a flexible CMMS that can automate your workflows and eliminate these manual processes. 

Issue #2: You’re facing compliance and documentation challenges

Ensuring proper compliance and documentation can create delays to the work order payout process. 

• Incomplete documentation: Missing information on invoices or work orders can delay payment approval
• Certificate of Insurance (COI) verification: Ensuring vendors maintain proper insurance coverage is essential but often difficult to track
• Regulatory compliance: Different jurisdictions may have specific requirements for vendor payments
• Contract terms enforcement: Ensuring invoices align with negotiated contract terms can be complex and make the review period longer 
• Service verification: Confirming that services were performed as specified before approving payment

These compliance issues not only affect payment timeliness but can also expose organizations to significant risks if not properly managed.

Our best solution: Implement a centralized compliance tracking system that automates document validation, insurance verification, and service confirmation. Bonus: this creates a clear audit trail for regulatory requirements.

Issue #3: There are communication barriers between team members and vendors 

Poor communication between key stakeholders (vendors, facilities management team members, and site managers) often leads to payment delays and disputes. These are some of the causes of communication breakdowns: 

• Multiple points of contact: When multiple individuals are involved in the payment process, there are more opportunities for miscommunication 
• Unclear expectations: When service requirements and payment terms aren't clearly communicated, you’ll see an increase in disputes 
• Status updates: Lack of visibility into payment status creates uncertainty for vendors
• Invoice queries: When questions about invoices arise, slow response times delay payment processing

In our experience working with some of the nation’s leading retailers, we found that on average, operators work with at least 20 service providers, each with their own point of contact (POC) and accounting department! It quickly becomes overwhelming to communicate with so many parties across so many channels (texts, emails, phone calls, apps, etc). 

Our best solution: Establish a centralized communication hub that consolidates all vendor interactions and standardizes your messaging protocols. Your CMMS can provide real-time status updates to all stakeholders throughout the payment process.

Issue #4: You’re facing budget and financial constraints 

Financial limitations and budgetary issues can certainly impact your vendor payment processes! All of these problems lead to payout delays and interruptions: 

• Cash flow challenges: Temporary cash flow constraints may force organizations to delay payments
• Budget approval delays: When budget approvals are delayed, payments may be held up even when invoices have been processed
• Fiscal year transitions: Payment processing often slows during fiscal year transitions
• Emergency expense management: Unexpected maintenance emergencies can strain budgets and delay other planned payments
• Cost allocation complexity: Determining how to allocate costs across departments or budget categories can delay payment approvals

These financial constraints require careful management to minimize their impact on vendor relationships. 

Our best solution: Although some of the solutions to these problems fall outside of the scope of facilities management, facilities management software can be used to prioritize decisions during tight cash flow periods. Facilities managers can contribute to capital planning and budgeting with the support of a good CMMS. 

What are some best practices for handling vendor payments?

At Fexa, we help large, multi-site operations fix their vendor payment problems through flexible CMMS software solutions that automate workflows, provide data for decision-making, and eliminate all kinds of payment delays. 

We know a lot about how to transform your vendor payment management system from a challenge into a fine-tuned machine. Based on the insights we’ve gathered as the leading CMMS for multi-site facilities operations, here are the best practices that will get your vendor payout system working like you need it to! 

We’ve broken these best practices into 6 categories: 

1. Establish clear payment terms and policies 
2. Streamline your invoice processing
3. Leverage technology and automation
4. Implement robust vendor performance tracking
5. Foster transparent communication 
6. Conduct regular process audits for improvement

If you can’t implement all of these right away, choose one or two categories to focus on! Alternatively, you can schedule a Fexa demo to learn about how we make it easy to make all of these best practices a reality. 

Establish clear payment terms and policies 

When your policies are clear, right from the beginning, everyone knows what to expect. You can solve a lot of problems simply by ensuring that everyone from accounts payable to individual vendors knows exactly what to expect when processing an invoice. 

1. Develop standardized vendor agreements that clearly outline payment terms, including timelines, methods, and required documentation.
2. Establish consistent rate structures for common services to simplify invoice review and approval processes.
3. Clearly communicate what documentation vendors must provide with their invoices for faster processing.
4. Define specific processes for handling payment disputes or delays to minimize disruptions.
5. Consider implementing payment terms that incentivize high-quality service and timely completion.

Streamline your invoice processing 

Efficient invoice processing is critical for timely payments. When invoices sit, unprocessed and unpaid, vendors get frustrated and your operation suffers. By streamlining these processes, facilities managers can significantly reduce payment delays and administrative overhead. 

1. Provide vendors with standard invoice templates to ensure consistent information and format.
2. Implement electronic invoice submission to eliminate paper handling and reduce processing time.
3. Use automated systems to validate invoice details against work orders, contracts, and approved rates.
4. Process similar invoices in batches to improve efficiency and consistency.
5. Establish clear workflows that prioritize urgent invoices for faster processing.

Leverage technology and automation

Modern technology solutions offer powerful tools for improving vendor payment management! As a CMMS provider, we are proud to be part of the solution for facilities that need to run more efficiently! 

1. Implement a CMMS that integrates with accounting systems to streamline your payment workflows.
2. Configure automated approval paths based on invoice amount, vendor type, or service category.
3. Use electronic payment methods to expedite fund transfers and reduce processing time.
4. Enable authorized personnel to review and approve invoices via mobile devices for greater flexibility.
5. Implement systems that provide real-time visibility into invoice and payment status.

Implement robust vendor performance tracking 

Linking payments to performance metrics creates accountability and value. Fexa offers a vendor scorecard, which tracks system-wide KPIs for all vendors. 

1. Develop comprehensive scorecards that track performance metrics alongside payment history.
2. Conduct quarterly business reviews that include discussion of payment processes and performance.
3. Implement payment incentives for vendors who consistently meet or exceed performance targets.
4. Use performance and payment history data when selecting vendors for new projects.
5. Work collaboratively with vendors to identify and address payment process inefficiencies.

Foster transparent communication

Open, consistent communication is essential for effective vendor payment management. Implementing good communication standards protects you from misunderstandings and confusion. 

1. Provide vendors with regular updates on payment status to reduce inquiries and build trust.
2. Designate specific individuals responsible for vendor payment communication to maintain consistency.
3. Establish and communicate clear processes for resolving payment issues efficiently.
4. Alert vendors promptly when payment delays are anticipated to maintain relationships.
5. Create channels for vendors to provide feedback on payment processes for continuous improvement.

Conduct regular process audits for improvement

Self-assessment is one of the best ways to see growth. Organizations that are willing to self-audit and look for opportunities for improvement will always outperform those that choose to ignore their flaws. 

1. Periodically assess payment workflows to identify bottlenecks and inefficiencies.
2. Track and analyze the time required to process payments to identify improvement opportunities.
3. Incorporate vendor input when refining payment processes to address their concerns.
4. Compare your payment processes against industry best practices to stay competitive.
5. Regularly evaluate whether your technology solutions are effectively supporting your payment processes.

How can Fexa CMMS help? 

Fexa's CMMS offers comprehensive facilities management solutions that are designed to tackle vendor payment challenges in multi-site operations. The platform transforms invoice management through automation and validation controls, all while providing powerful vendor management tools. You’ll be able to track performance, compliance, invoice payouts, and work completion with ease! 

The system's reporting capabilities deliver actionable insights for data-driven decisions, as its multi-location support handles complex facilities operations. 

Key features include:

• Streamlined invoice processing with configurable business rules and accounting software integration
• Real-time performance tracking with customizable vendor scorecards and KPIs
• Automated notifications and reminders for pending approvals and deadlines
• Custom reporting tools that analyze payment patterns and vendor performance
• Centralized management across multiple locations with location-specific settings
• Seamless integration with accounting systems and other business platforms

With Fexa CMMS, facilities managers can transform vendor payment management from a challenge into a strategic advantage, ensuring timely payments while reducing administrative burden and strengthening vendor relationships.

Request a demo today!