Third-party procurement means another company buys on your behalf. The third party, often called the buyer of record, places the order with the supplier in its own name, pays the supplier, and then invoices you. Your accounts payable team sees one vendor. The supplier never enters your vendor master.
It fits one situation well. Your team needs something now from a supplier your organization will probably never use again. Setting that supplier up costs time and creates a record nobody will maintain. A buyer of record takes that work off your list.
Our earlier article covers why one-off vendors are a real cost. This one explains how the arrangement works from request to payment, so you can judge whether it fits.
How a buyer of record works, step by step
A typical order runs like this:
- Request. Your requester sends what they need: the item or service, the supplier if they already have one, the quote if they have it, the delivery address and the date needed.
- Approval. Your budget owner approves the purchase in your own process. The buyer of record should not place an order you have not approved.
- Quote and order. The buyer confirms price, lead time and terms with the supplier, then issues a purchase order in its own name.
- Supplier payment. The buyer pays the supplier by whatever method the supplier accepts: card, ACH, wire or the supplier’s own terms.
- Delivery. The supplier ships to your site or delivers the service to your team. Your team receives and checks the goods as usual. Delivery management, expediting and order status tracking are separate services you can add if you want them.
- Invoice to you. The buyer invoices you on the payment terms you agreed, with the supplier quote, purchase order and supplier invoice attached so your records are complete.
Your team deals with one company, the buyer of record, instead of a new supplier each time. You can still talk to the supplier about technical questions. The buyer handles the commercial side.
Who carries what
Before the first order, agree in writing who carries each part of the transaction. A good agreement answers these points:
- Payment to the supplier. The buyer of record pays the supplier and carries that payment until you pay. That is part of what the per-order fee covers.
- Title and shipping risk. Who owns the goods in transit, and who carries the loss if they are damaged or lost, should be set out using standard shipping terms such as Incoterms. Because the client chooses the goods and the delivery location, it often makes sense for that risk to pass to the client at the supplier’s shipping point. Agree on this before the first order.
- Quality and specifications. You define what you need and you accept or reject what arrives. The buyer of record passes rejections and returns to the supplier.
- Warranty and returns. The supplier’s warranty still applies. The agreement should say how the buyer of record handles a warranty claim on your behalf.
- Records. You should receive the quote, purchase order, supplier invoice and proof of delivery for every order.
When third-party procurement fits
A buyer of record works well when:
- The supplier is one-time or short-term, such as a prototype shop, a specialist service or a small online seller
- Supplier setup would take longer than the purchase itself
- The supplier will not complete your onboarding paperwork for a small order
- The supplier only accepts card or online payment and your cards cannot be used for that category
- You want small purchases kept out of your vendor master and your production supplier base
- A government agency or public entity wants to pay one small-business vendor by purchasing card or ACH instead of setting up several small suppliers
It fits less well when the supplier is a regular source. If you buy from the same supplier every month, set that supplier up directly and put a contract in place. A buyer of record should handle the tail, not your core suppliers.
What does a third-party buyer of record cost?
LeVasseur charges a per-order fee, quoted per project. The fee covers issuing the purchase order: placing the order with the supplier, paying the supplier, carrying that payment until you pay, and the paperwork that comes with each invoice.
Delivery management, expediting and order status tracking are separate services. If you want someone to follow up with the supplier, push a late order or report status until the goods arrive, that work is quoted on its own, so you only pay for it when you need it.
Compare that fee with the full cost of the alternative, not only the price of the item. The alternative usually includes:
- Staff time to set up the supplier, collect tax and banking forms, and get approvals
- Accounts payable time for a new supplier’s invoices and payments
- The cost of the requester waiting for the supplier to be set up
- A vendor record that stays in your system after the one purchase
Questions to ask before you choose a provider
- Will you place orders only after our written approval?
- Which payment methods can you use to pay suppliers, and which can we use to pay you?
- What payment terms do you offer us?
- How do you set out title and shipping risk in the agreement?
- What documents come with each invoice?
- How do you handle returns, rejections and warranty claims?
- Can you buy from suppliers outside the United States, and who handles import duties?
- How fast do you turn around a quote and an order?
- Will you tell us when a supplier is used often enough that we should set it up directly?
Ask the last question for your own savings. A provider that tells you when to move a supplier in-house is looking at your purchasing as a whole and is willing to give up those orders.
How to start
Pick one category where one-off suppliers keep appearing, such as prototype parts, lab supplies or specialist services. Run those requests through a buyer of record for one quarter. Track the number of supplier setups you avoided, the time from request to order, and what your requesters say. Then decide whether to widen it.
Common questions
What is third-party procurement?
Third-party procurement means another company buys on your behalf. The buyer of record places the order with the supplier in its own name, pays the supplier and invoices you, so the supplier never enters your vendor master.
What is a buyer of record in procurement?
A buyer of record is the company named on the purchase order and responsible for paying the supplier. In third-party procurement, the provider acts as buyer of record and then bills the client as a single vendor.
When should a company use a third-party buying service?
Use one when the supplier is a one-time or short-term need, when supplier setup would take longer than the purchase, or when you want small purchases kept out of your vendor master. Regular suppliers should be set up directly with a contract.
Who carries shipping risk with a buyer of record?
The agreement should say so, using standard shipping terms such as Incoterms. Because the client chooses the goods and the delivery location, title and transit risk often pass to the client at the supplier’s shipping point.
LeVasseur Consultants provides third-party procurement and pass-through purchasing for growing organizations. Contact us to set up a buyer of record for your one-off suppliers.