The current crisis has highlighted a true polarisation of how organisations treat their supply chains. From those that recognise the challenges faced by their valued suppliers and actively look for ways to pay them early, even in advance, to those that put supplier payments on hold or stop them completely.
The impact of not paying on time can be catastrophic for businesses, especially those that struggle to obtain access to liquidity from traditional sources, simply and quickly. We should note that by far the primary reason businesses fail is because they simply run out of cash. Cash that would be used to pay salaries, creditors and the ongoing operating costs of that business.
A recent report “Late Again: how the coronavirus pandemic is impacting payment terms for small firms” from the Federation of Small Businesses highlights that circa 62% of small businesses have experienced either an increase in late payments and/or had payments frozen completely as a result of the crisis. And this, in a time of hardship can cause devastating impacts.
The fact is that there is little or no excuse for late payment. Doing what is right for your supply chain is good not only for your suppliers, but it is good for you. Timely payments promote strong customer supplier relationships, that will likely result in enhanced service provision. Less supplier churn reduces the requirement to find and onboard new providers of good and services, delivering operational benefit and consistency of supply. It can deliver strong reputational benefits and catapults your organisation to become the “customer of choice”. And it can generate tangible social value.
We should not underestimate the importance of social value and the positive outcomes that it delivers for your organisation and it’s ecosystem. You can measure the social value your business is creating by working with the Social Value Portal who supports many large organisations both in the public and private sector to deliver and understand that social value. Find out more about how you can measure and manage your social value here.
A shining example of a department that is supporting businesses in the current crisis is the Small Business Commissioners Office (SBC), led by Interim Small Business Commissioner, Philip King. The SBC is an independent body set up by government in 2017 to support businesses in tackling the late payment challenges faced by organisations across the UK. And in the current environment the SBC is a valued and fantastic support mechanism.
Not only does the SBC provide useful tips and advice regarding how to get your business paid on time, but they also actively get involved in cases where payments are not forthcoming. Since incorporation they have directly played an active role in £millions in payments being made to small businesses. At this point we should note that they consider a small business to be one with less than 50 employees. This accounts for over 99% of UK businesses that could benefit from this support. And they do it at no cost. That’s incredible!
The same office also recognises and shares details of those larger organisations that stand out in terms of their payment practices, both good and bad. For those that display great practices it creates real reputational benefit and valuable positive PR. Conversely those that are identified as treating their suppliers unfairly can be named andshamed and a prompt payment code signatory can be publicly suspended from the code. The negative reputational impacts can be significant for organisations falling fowl. However, the SBC offers to work with those whose payment practices fall short, sharing examples of what others have done to improve their practices and the benefits this has yielded. To date over 70% of businesses that have been suspended by the Prompt Payment Code have been reinstated for applying measures to support their supply chain. You can find examples of organisations that have demonstrated both good and bad practices here.
The fact of the matter is that you don’t need to be suspended from the prompt payment code to do the right thing by your supply chain. Supporting your supply chain can start right now. In fact, it is possible to do the right thing by your suppliers, whilst achieving great operational efficiencies and generating financial return for you.
In order to start you don’t have to change your processes to help your suppliers get paid sooner. It simply begins with a cultural shift. Everyone that has a part to play in the processing of an invoice must recognise and have an awareness and appreciation for the benefits and impacts of timely payments.
An invoice sat on the desk of an internal buyer rather than being submitted to the Accounts Payable Team for processing can delay a payment or even the supplier’s awareness that the invoice has been approved. Simply not knowing if your invoice will be paid or by when for many businesses is like not knowing if their salary is going to be paid that month. It can be incredibly stressful and prevents them from budgeting. Passing an approved invoice to the right team in a timely fashion is one very simple step to an improved process.
However, there are many more straightforward things that can be done, that do not need to cost anything to make an impact andnd they can create efficiencies in operations. e.g. significantly reducing the time and effort involved in investigating and fielding payment queries from suppliers, which makes the AP teams and suppliers time far more productive.
So, we can see that late payments make no sense and they can result in greater operational demands such as dealing with irate or stressed suppliers. They can cause reputational damage and ultimately cost your business. They can result in your supplier seeking costly forms of finance to compensate for the cash shortfall of not being paid on time that would likely be absorbed in the cost of goods or services to you.
There is a better way, and that is to eliminate late payments all together. How about supporting suppliers in getting paid sooner?
We should acknowledge that there is a cost of cash for an organisation to make swifter payments to their suppliers and this can make it prohibitive.
So how can we make it attractive?
The fact is the cost of cash to a customer is often far less than it would be for their supplier to seek finance from a traditional source to cover the same level of cash shortfall. Especially when we consider the efforts involved in obtaining and servicing a funding line. There is a clear win win for both the customer and its supplier.
The customer can offer to make the payment sooner in exchange for a discount to an invoice that would compensate for the cost of cash. The discount being at a level that is acceptable to the supplier. The customer could therefore ultimately optimise their own cash through the discounts generated and the supplier can access cash in a simple and convenient way.
In some instances the cash position of the customer will not be able to sufficiently facilitate early payments. If this is the case, they could work with a funder to offer to fast track the payments on their behalf. This has no adverse impact on their own cashflow, whilst the supply chain still benefits from lower cost access to funds.
This process eliminates late payments and promotes early payments. Surely a much better place to be.
Deploying an early payment solution can deliver immediate operational benefit and financial return, whilst supporting your supply chain. It will also act as a decent yardstick for the strength of an organisation’s invoice processing capability. The return that is created can be used to further invest in the supply chain including the delivery of additional process optimisation through digital enhancements, which in turn will create even more return. This seems like a no brainer!
bePayds Anthony Persse, recently joined Philip King, the UK’s Small Business Commissioner as a panellist on a webinar hosted by Founder of the P2P Network, Ellen Leith. It was agreed that to change payment practice starts with an organisation’s culture as it creates a belief state and awareness of why changes need to happen. This can be followed by process enhancements andnd then to truly optimise value, technology should be embraced.
Before embarking on change there needs to be a clear motivation to make change. What better than to do the right thing and support others, getting recognition for it both financially and operationally.
bePayd, Proactis’ early payment service has been developed in close dialogue with businesses of all sizes to help facilitate early payments and unlike any other can support the entire supply chain fromthe smallest supplier and smallest invoice in the simplest and most convenient way.
Contact the bePayd Team at hello@bepayd.com to find out more.