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What are the payment terms?

Should the payment terms appears as in sum off% in contract, or it might be shown as milestone payment, what is the better payment scheme for sub contractors.?

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Question added by Amin ALMASRI , Procurement Manager , Dur Hospitality Co.
Date Posted: 2016/02/24
Nadeem Asghar
by Nadeem Asghar , Supply Chain Consultant/Trainer , Independent Practitioner

These two shall go together. Percentage payment is always linked with a specific milestone, which means that upon completion of a specific milestone, the subcontract shall be paid percentage payment as specified. However, in cases where payment is linked with period, tasked based milestones wouldn't be required.

Md Fazlur Rahman
by Md Fazlur Rahman , Procurement Specialist , Engineering and Planning Consultants Ltd

Normally, a part payment clause is inserted in contract against part completion of work in construction and other related projects with a predefined agreed milestone for measurement. For contract administration purpose, the milestone must indicate the percentage “%” completion of work and payment is made accordingly with some retention amount.

However, normally service contracts, normally a monthly payment plan is inserted

 

Saad Hashmi
by Saad Hashmi , Associate Procurement Manager , Delmon Products Saudi Limited - IFFCO

The amount of days & the conditions upon which the payment is to be made.

Ibrahim Saleh
by Ibrahim Saleh , Centralized Procurement Director , Aluminum Products Company (ALUPCO)

Agree with Mr. Nadeem,, From the legal prospective, and on accordance to Islamic law, it's essential to have a fixed and determined clarification on the payment(s) plus the Contract value. Whereas, it's by principle that both Parties may agree on the payment method and terms, thus such decisions are critical to be made due to the nature of each Project/scope.  My advise, (i) I would address the Contract value as estimated contract value (negotiation wise, the subcontractor may be subjected to a particular penalty/deductions) PLUS (ii) I would make the payment cleared by numbers (not in percentage manner).

Renato Manuel
by Renato Manuel , Supply Chain Officer , National Mineral Water Co. SAOG

Should the payment terms appears as in sum off % in contract, or it might be shown as milestone payment, what is the better payment scheme for sub contractors.

In my field, normally it should show as milestone payment. Especially in contracts, a milestone payment has to be agreed upon via percentage wise like upon mobilization, delivery of materials, finished work stage wise as well as the commissioning and hand over. 

Deleted user
by Deleted user

Payment term: This depends on your old experience with the manufacturer and supplier you deal with. It is more important matter. If you trust this then, you sure to study the payable amount " How much?!". Mostly we go with%% TT transfer for the small amounts with trusted suppliers, as the best choice. Also, we can go with the other terms of payment, LOC, CAD, Partial %, for the big amount, after we trust the ability of supplier in providing the purchased items. 

Vipul Kapadia
by Vipul Kapadia , Asst. Finance Manager , Abu Dhabi National Oil Company

Every business will set of payment terms for each creditors according to the company's requirements and customers' credibility. it can be cash, 30 days from supply, 45 days from supply etc..

Ihtesahm Syed
by Ihtesahm Syed , Head of Supply Chain , Hail Cement Company

Payment terms shall be shown off in % and also related to his Performance. Like start of the work 15~30% payment will be given and rest will release based on Performance Guarantee Bond.

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