Doing the Right Thing - It’s Time to Pay on Time

Paying suppliers late may not be best practice, but it happens, right? It’s just one of the costs of doing business and more than that, it’s a useful tool in the armoury of finance leaders to manage cash, and not only that, a tool that they’ve been taught as accountants to use.

Well no, not right, really.

At a cost to the UK economy of £27bn, late payments are a significant threat to the stability of our supply chains. At our Purchase to Pay Network Executive Christmas Lunch on Tuesday, we discussed the power of a Partnership Economy with Shadow Transport Minister, Bill Esterson and Small Business Commissioner, Liz Barclay.

The theory of a partnership economy takes into account not only our organisational or departmental needs, but considers the wider impact of our processes and policies in a much broader sense too. For example, paying late might mean our own cash positions benefit, but what is it doing to our suppliers? How instead might initiatives like investment in digital infrastructure enable better insight as well as encourage collaborative strategic partnerships? If suppliers are continually paid late, guess what? They’ll go elsewhere with any innovative ideas, or worse still, those ideas simply fail to come to fruition, at an unquantifiable collective cost.

Restricted cash flow creates uncertainty. With a future that’s impossible to predict, late payments inject stagnation into the heart of our entrepreneurial community. As Liz Barclay pointed out, one of the issues is that it’s a rare thing to find a CEO of a big business who has also at some point run their own company. And while it’s not essential to have lived experience to have empathy, it does mean that the significance of a relatively small invoice can be lost. But as we heard, sometimes it comes at huge personal cost, causing businesses to fail, relationships and even lives to be lost.

We discussed that there needs to be more emphasis on the S and the G and not just the E of ESG, and considered that perhaps there is a need as part of the partnership economy for more of a “trickle up” approach to business and the economy. In other words, rather than the Keynesian method of waiting for business from the top to generate stability further down the supply chain, we should boost our smaller suppliers and create a broad basis for success from the bottom up. Certainly, it was agreed that organisations needed to know the business better, understand more what the relationships meant, and called for enhanced analytics and real time data, to help that to happen.

And here’s where people come in too. With the spread of digitisation, the people within our organisations can upskill or reskill and as a result, engage in activities that directly affect the outcomes of the business. The challenge here can sometimes be the time spent finding those people or getting existing staff up to speed. But once in place, those around the table agreed that there was a better sense of job satisfaction and staff retention. And in terms of attracting new talent in the first place, that satisfaction also came from employees knowing that their organisation was one to be proud of, not one in the papers best known for poor treatment of their suppliers.

Some around the table, and as is the case for others in the Network community, suggested putting adherence to the Prompt Payment Code, or prompt payment practice as one of the reporting metrics. Where there are strict policies around paying to terms, and where that has to be reported to the Board, adherence goes up.

Of course, poor practice is sometimes because of the culture of the organisation and occasionally even the culture of an industry. But if it’s bad, it can change. As in most things it’s about understanding the benefits of a two-way relationship. Both sides of any transaction need to see what’s in it for them. If the benefits go too far in one direction, it’s not a relationship that’s going to end happily. Fortunately, here’s where technology comes in too.

Technology by itself is not going to improve bad practice, but it can highlight where the problems lie, identify why they are happening, predict what might happen if the process continues and sometimes highlight who in the department might need to address things differently. The key here is that any technology needs to be easy to use. Where supplier onboarding remains low, an organisation’s ROI and objectives are going to falter. Get it right - the right technology, a well thought through change management programme, involving the right people and the right process - and suddenly your challenges will look quite different.

It was an insightful and interesting lunch with valuable discussions up and down the table, and while those around the table as Liz Barclay said, were the “good guys,” the power of communication along our collective networks and our PPN community including our technology partners, such as Workday Adaptive Planning , who shared their thoughts at the lunch, means that knowledge can be disseminated broad and wide.

Surely now's the time to pay on time.