• Richard Manson , Co-founder and Financial Director at CloudTrade

  • 06.02.2018 08:30 am
  • undisclosed

Last month the first edition of the UK Government's new ‘name & shame’ report on late supplier payments was published. Alongside the news of Carillion’s collapse, the report paints a grim picture and the problem appears to be worse than it looks – not least because "lateness" is being measured against the buyer's own self-imposed terms, which may be very long already.

Personally, I believe that large companies appreciate the problem of late payments but are hamstrung by their processes. What they may or may not realise is that with today’s technology, it is possible to pay suppliers instantly) on the day an invoice is received, without the buyer having to change its terms, onboard a cumbersome new P2P solution, use their own cash flow or bear any risk. The tools exist, but they need to be used.

Under new rules introduced in April 2017, all large UK companies are required to publish specific information regarding their payment policies, practices and performance - including the average time taken to pay supplier invoices (Days Payable Outstanding - DPO) - twice yearly.

Reducing your DPO helps to support your supply chain and with many ‘dynamic discounting’ and ‘supply chain financing’ solutions available, shortening your DPO can also add additional margin to your bottom-line and improve your cashflow.

The report is available online for anyone to have a look at and, interestingly, updates as soon as each business comes forward with its information. It is aimed at helping suppliers to make more informed decisions about who they do business with. 

The measure, launched by the Department for Business, Energy and Industrial Strategy, also seeks to alleviate the administrative and financial burdens faced by thousands of small and medium sized business due to late payments. The nation's SMEs are owed £26 billion in overdue payments, according to research by payments processing company Bacs[i].

The Prompt Payment Code

The Government has been ‘on the case’ of late payments for a while. Indeed, the Prompt Payment Code has been around for a few years now, setting out principles for businesses to follow when dealing with and paying their suppliers. However, to date, only around 1800 businesses and public authorities have committed to the PPC.

Prompt payment can make all the difference to small businesses, boosting their cashflow and allowing them to invest in growth for the future. Although we have seen some progress, there are still too many business owners across the country who have not been paid on time by their customers.

For many organisations, it isn’t a lack of desire to comply, it is a lack of ability. The Prompt Payment Code is just not within their grasp because of inefficient processes, not that they are somehow underhanded or think suppliers undeserving.

Imagine if you will, where processes are such that suppliers are sending in paper invoices, finance teams are keying in each line of data to their systems, and rekeying where mistakes are made, then the paper invoice gets copied a few times and sent to various people in the organisation for different stages of approval. When all necessary approvals have been made the finance team then need to process the invoice for payment.

With the best will in the world, this process takes some time; people may be out on the road, working remotely, bogged down in their own day-to-day work and not prioritise approving the invoice. The paper copy gets lost and finance need to re-copy and send out again, assuming they have not lost the original and need to go back to the supplier.

Without proper processes and the right technology in place, the Prompt Payment Code remains nothing but pie in the sky for many organisations and no amount of culture change will ‘stamp this out’.

In the above scenario, the organisation was receiving paper invoices and then having to key and rekey the information in to electronic systems for processing. But what if you could remove this stage? Suddenly the Prompt Payment Code isn’t such a pipe dream.

So, could e-invoicing be the answer?

The latest e-invoicing technology enables suppliers to simply create their invoice, convert it to a PDF and email it over. The technology extracts the data from the PDF and puts it straight into the buyer’s finance package.

A supplier does nothing different except PDF their invoice (which their own finance package is likely to be able to do for them) and then email it over. For the buyer the time-consuming rigmarole of keying and rekeying in data is removed. There are no more paper invoices to hold on to or to potentially lose. The data is all held electronically.

As well as saving money on accounts payable processing costs, a buyer helps to keep their suppliers in business by paying them on time. This maintains a broad base of suppliers to choose from and keeps service and product prices competitive.

E-invoicing provides the foundations that allow organisations of all shapes and sizes, to put automation and controls around their invoice to payment function, that sets them up for success and increases their ability to pay on time (or early).

It’s a small change. But it’s a change that has a big effect both culturally and economically, and one that could take the Prompt Payment Code to a new level of widespread acceptance.



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