The turmoil caused by large companies by consistently making late payments to suppliers is rarely far from the news and this week is no exception. According to a number of British broadsheets, the UK’s Business Secretary Vince Cable has announced that he is looking into introducing a fine for companies that pay late, which he hopes will encourage firms to pay within 30 days.
Attempts to tackle tardy payers are said to have had little impact with fewer than 50% of the companies on the FTSE 350 having signed up to the voluntary prompt payment code.
£36bn owed in late payment
In an interview on payment practices on BBC Radio 4 yesterday morning, presenter Evan Davis asked Debbie Abrahams, MP and chair of a recent cross-party parliamentary inquiry, if this issue isn’t for customers and their suppliers to sort out? She pointed to the £36bn that Bacs, an organisation that maintains the integrity of payment-related services, says is owed to small and medium-sized enterprises (SMEs) in late payment. These unpaid invoices not only impact a supplier’s growth and solvency but also negatively affect the wider economy.
The inquiry into payment practices made 11 recommendations on how to address late payment to SMEs, including a suggestion that the UK government should also get its own house in order. It has already taken steps to ensure its tier-one suppliers are paid on time but the inquiry has called for this to go all the way down the supply chain.
Support from Europe, e-Invoicing and early payment solutions
While the government considers this suggestion it is likely to receive help from the European Commission, which is currently discussing the role of e-Invoicing within public procurement and has published a draft directive. As more central and local government bodies adopt e-Invoicing as their preferred method of working with suppliers, invoices will be received and approved swiftly, enabling payment on time.
In addition, the increase in prominence of supply chain finance and early payment solutions.
By automating purchase to pay with e-Invoicing, supply chain finance brings benefits to both customers and suppliers. Customers can offer early payment in exchange for a small discount, which helps improve suppliers’ cash flow and growth. And by using a flexible solution, buyers can also extend their payment terms without affecting relations with their vendors.
We know that the UK is not the only government to be looking at the role of early payment tools to help SMEs. As a solution that pushes value along the supply chain, it is can make late payment a thing of the past in the UK and beyond.