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The Late Payment Taskforce

Proactis held its second late payment taskforce roundtable with industry leaders in July 2019.

Businesses of all sizes have liquidity cash flow challenges, albeit some far more than others.  The greatest pain is often felt by those who don’t have easy access to alternative methods of bridging gaps in cash flow, and SMEs are the business most affected by this. 

Unlike large businesses small business owners often wear many hats, a single person can find themselves responsible for Sales & Marketing, Finance & Reporting, HR & Recruitment, Funding, Operations, Procurement, Debt Collection etc. Therefore, time spent doing something they shouldn’t need to is time lost doing something that could be adding real value to their business. 

When a due payment is made late, or worse, not made at all, this can have catastrophic impacts on the small business and can ultimately be the cause of that business’s demise. This in turn can impact the wellbeing of that business owner who will often rely on their business to make mortgage payments or simply put the food on the table. 

The business community is a complex and confusing world:
  • Uncertainty from Brexit and the potential fall out that may bring.
  • Uncertainty from what new regulations and processes will be needed for their businesses to operate e.g. GDPR compliance and Making Tax Digital.
  • Uncertainty driven by fast moving technologies.
  • Uncertainty about the ability to attract new talent and from where.
However, one thing that is often uncertain but should absolutely be a CERTAINTY is the answer to the question, “am I going to get paid the amount that was agreed on the date that was agreed for the goods or services I provide?”. Obviously, the answer should be a resounding “YES”. However, many businesses find themselves chasing a payment or simply confirmation that a payment is going to be made on a given date and they often don’t get a straightforward answer. This is valuable time that is spent doing something that could be spent running their business or doing the things they enjoy.

So, where does the problem lie? 
We all too often see large organisations being targeted as the culprits for driving the uncertainty surrounding confirmation that a payment will be made on time. While there may be some truth in this, we need to understand that the process of managing huge volumes of suppliers and invoices is not a simple one. Large organisations must ensure that the product and/or service has been delivered in the way described and that the information in each invoice matches the agreed order.  If we ordered a coffee at a coffee shop and all that arrived was an empty cup, we wouldn’t pay for it; we would check that the cup had the coffee in first.  Or if a coffee was offered at £2.50 and you were charged £5, we would likely refuse. 

Similarly, large organisations need to ensure that the goods or services delivered and the payment amount (and term) are as agreed in advance before committing to making payments.  This becomes more complicated if a large organisation has thousands of suppliers, creating hundreds of thousands of invoices in different formats, with different information and with buyers that could be well spread across multiple locations. 

The Late Payment Taskforce
The Late Payment Taskforce was put together by Proactis to bring highly influential industry leaders that represent different organisation types, to understand the challenges that all businesses face. The idea was that the group would identify mechanisms that could reduce late payments and the cash flow disconnect. 

It was agreed that, in general, larger organisations don’t actively or maliciously look to pay suppliers late, as supply chain health is of greater value than the benefit of extending payment terms. It was also identified that the recent impacts of activity, such as the recent suspension of businesses from the Prompt Payment Code which in turn could deliver reputational damage, has resulted in positive change. That said, we know that many large organisations still find making on-time payments difficult. 

The Taskforce invited subject matter experts from large organisations that represented Procurement and Accounts Payable (AP) processes to share their experience and challenges. 

The session emphasised that many businesses need to focus on three primary areas:
  • Processes – we found that processes are often sub-optimal, many with decentralised or inconsistent buying processes that can hinder the Account Payable (AP) team’s ability to make timely payments.
  • Systems – we recognised that technology can support organisations by simplifying the procurement and AP processes. However, systems and technology are often old and inflexible, yet investment is often directed elsewhere. Therefore, it was clear that the value of focus in this area would need to be highlighted to the “C suite”. It was highlighted that value can be derived from effective supplier onboarding, supply chain health and sustainable relationships with solid supplier loyalty.
  • Culture – we identified that not everyone within a large organisation understands or has an appreciation for the potential implication of not paying a supplier on time.  It should be vital that when an invoice is received it is acted upon with urgency to ensure that it has the greatest likelihood of on-time payment.  It is therefore paramount that the impacts of late payment are understood throughout an organisation.
In summary, to really make a decent impact, processes need to be optimised, systems need to be invested in and cultures need changing to recognise the importance of timely payment processes.  It was agreed that the best way to deliver this would be through education, starting with the “C Suite” and then cascading throughout entire business.  The next phase of the Taskforce is to look at driving this education.

Ultimately, by working together and getting some fundamental things right organisations can deliver certainty in an uncertain world and maximise supply chain health that will in turn will drive massive economic benefits.

Watch the overview of the Proactis Late Payment Taskforce Roundtable