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Procurement Fee — The Basics and Its Importance

A procurement fee can be what makes the procurement vehicle move. But do you know what exactly a procurement fee is? How does it constantly affect your business? And why does it matter?

For this article, we will discuss the definition and importance of a procurement fee. We will also explore its different types and learn how to pay for it. Further insights with this aspect of procurement can help you improve your payment approaches, and help you navigate through it.

What is a Procurement Fee?

A procurement fee is the payment of a company to procure goods and services from a supplier. It usually includes fees involving your procurement process:

• Legal Fees
• Advertising Fees
• Consultant Fees

Basically, these are fees that ensure you obtain the goods and services you want to procure. Procurement fees vary based on a company’s need and strategy employment. For example, a company engaging with various suppliers pays more than others that specifically tailor their procurement strategy.

Why is a Procurement Fee Important?

Knowing how much a company spends in a procurement fee is important, as it helps them formulate effective spending strategies. Usually, it concerns the fund allocation of the procurement team to ensure that they are not spending unnecessarily. It also involves payment for engaging with suppliers for their exertion of effort.

Procurement fees also account for services rendered by a skilled individual’s involvement in your procurement process.

Charging a Procurement Fee

Charging a procurement fee depends on the approach of the company. Usually, procurement fees are implementations in processes that require skill outsourcing, hence legal fees, etc. It helps finance these processes to continue these services. Generally, procurement fees lean on the compliance side, and charging it shows good faith and willingness to cooperate.

Additionally, a procurement fee can help incentivize suppliers to engage more business with the company. This can open more opportunities when it comes to laying out a financial plan for company spending. Considerations for paying Procurement Fee can known through these examples:

1. Legal fees 

Payment for individuals who process the legal compliance activities of the company. Usually, this involves the lawyer, or the law firm that handles matters concerning the court and law-based problems or compliances. As much as possible, legal fees smoothen out the procurement process. You would not want any legal scenario action-packed, least to say.

2. Advertising Fees

Payment for advertisements that aim to engage customers with the product. It involves marketing as it makes a business concept or product exposed to its target market. Mostly, it involves the creative side, where you need to make the engagement more appealing and enticing for its purpose.

3. Consultant Fees

Payment for individuals who help assess and evaluate certain marketing structures, to improve business competitiveness. Usually, consultants help recognize opportunities along with the procurement team. More like a hand-in-hand situation.

4. Transportation fees

Payment for handling the transfer of goods. It may involve fuel expenditures, driver fees, meals, and other vehicular-related fees that can apply. In contrast to transportation costs, this deals with a more active side. You pay because the driver needs payment, he needs lodging, food, and a budget for other transport-related expenditures.

Considerations for a procurement fee are made when it is legal and ethical. It improves business relations, establishes an agreement, and maintains these processes to be smoothly flowing.

Should you Pay a Procurement Fee?

Usually, paying a procurement fee involves bidding contracts and cost optimization. Some also require it depending on their contract agreement. But most of the time, a procurement fee incentivizes a supplier for their engagement with a company.

To some, an imposition of a procurement fee may, or may not be, necessary. A company may choose to implement a procurement fee because it is part of its procurement strategy.

But in general, paying a procurement fee is an important part of the procurement process. It helps cover fees regarding the services done for the procurement process. Additionally, it stabilizes the payments involving the company’s procurement.

What are the Types of Procurement Fee?

There are various types of procurement fees, each addressing their own needs:

1. Fixed Fee

This type of procurement fee already accompanies the engagement of the procurement process itself. Usually, a company sets the price upfront to establish the necessary spending. It can change accordingly with the company’s agreement.

2. Percentage Fee

Dictating a percentage fee depends on a company’s spending strategy. The percentage implemented by this fee depends on the project volume of the company’s procurement process. Unlike fixed fees, percentage fees are often costly for a buyer, and tricky for a supplier to implement. It all depends on their contract agreement.

3. Contingency Fee

A contingency fee serves as a cushion for a supplier. It serves as an additional fee beyond the agreement of both parties. Contingency fees may only occur with deals that usually involve high-risk, high-reward items. See the Kraljic matrix for more details regarding supply assessment.

4. Flat Fee

A flat fee applies to any purchase, regardless of the work and effort put into the procurement process. Oftentimes, applying flat fees encourages direct spending. However, it may also affect workload times depending on the individual’s activity.

Procurement Fee vs. Procurement Cost

A procurement fee is a charge or payment for the services you incur in the procurement process. On the other hand, a procurement cost is what you need to pay for in executing your procurement.

A procurement fee specifies the amount you need to pay on account of services in the procurement process. Additionally, procurement cost exemplifies the overall expense on account of the procurement itself.

The table below can further clarify the difference between a procurement fee and a procurement cost. The procurement process is filled with varying amounts that need to be paid. A better understanding of where and what to spend can help you optimize your funds.

Conclusion

To sum it up, a procurement fee helps finance the procurement process of a company. It enables them to collect funds to sustain and incentivize the skilled individuals in their procurement arsenal. Procurement fees also add a layer of security for a company’s continuous engagement in business.