Three recent personal experiences from former clients bring to life an increasingly significant business issue:
I received a call from a company I vaguely knew needing some political analysis. I worked through a weekend, and they were grateful for the report I sent. Five months later, I explained to the company's Finance Director that I would be cancelling their still unpaid invoice and listing the company on our website under pro-bono clients. I spared them this embarrassment as they paid within the week.
Then, after working successfully with a Forbes 500 company for two years, our contract was extended so we commenced a new programme of activity in January with a new Purchase Order promised. Despite several polite requests, I spoke to the client in despair on 30 June and explained that we wouldn't continue working with them until the Purchase Order was received. Unsurprisingly it arrived within days, yet we still had to wait a further 30 days, for the payment to hit our bank. That year, we worked for the company for 215 days before any payment was received.
Recently a procurement manager explained that for all suppliers they were extending their payment terms by 15 days. No explanation was given - this was a global company decision. When I objected, I was advised that they would halve the payment terms, but on condition that we discount our invoices by 3%.
These are not isolated incidents, or bad luck on our behalf. Over £42bn is owed to small and medium firms in late payments. These incidents are part of a wider trend that is jeopardising SMEs around the country, and putting our economic recovery at risk.
Both from personal experience and wider conversations, I see growing evidence that companies are delaying their payments to suppliers. And I see the hand of procurement departments in this. I certainly value the procurement colleagues we work with; after a competitive pitch, they will cut a deal with their preferred supplier. When you have issues with process, they are our first port of call and will help to resolve queries. When we need to prove that we are adding value to the client, we share key metrics with procurement teams. With all existing clients we have a spirit of partnership working with procurement colleagues. However, I am increasingly coming to the view that procurement teams are incentivised not just on money saved, but the length of time they can withhold payment from suppliers.
Of course we have suppliers ourselves, but I feel our approach is some way from the experience we have had to endure. Our suppliers invoice us, and once checked the payments hits their account on the next possible weekly payment run. We don't seek to withhold payment for several reasons. Firstly, we don't get paid interest by our bank so there is little point in holding onto the cash. Secondly, we have a truer picture of where we stand as a business if we don't have invoices awaiting payment. Third, it means we don't need to waste time receiving calls from accounts departments chasing payments, or tying up invoices with statements. But most importantly, for the simple reason that the work has been done, the invoice has been raised, and the supplier deserves to be paid - dragging out settling the tab is unjustified and immoral. That's why when Insight became signatories to the Prompt Payment Code we didn't need to change anything about the way we did business.
Debbie Abrahams, MP for Oldham East and Saddleworth has been a lone champion in putting the issue of late payment on the political agenda. Last month, the Government proposed that the UK's largest and publicly quoted businesses will have to start reporting quarterly on their payment terms, the proportion paid after the date, and the proportion paid in under 30 days, over 30 days, over 60 days and over 90 days. This is welcome news - it will raise standards and performance, and increase transparency in our largest companies. However for the cleaning company owed £70k by a major house-builder, or the local business owed £45k by the car company, this measure will not make a difference. Many of our SMEs simply don't work for quoted or major companies.
The Prompt Payment Code has to become a badge of honour, and send out a powerful signal about the values of the business, much akin to Living Wage Accreditation that over 1,000 businesses now have signed up to. My plea to all businesses - large and small - would be to sign up to the Prompt Payment Code, and pay suppliers on time. Firms have also got to shorten their payment terms as I can see no reason why they need more than a month to clear an invoice. If the work is done, there is no justification to withhold payment for 60 days, 75 days or even three months. Furthermore, suppliers need to get off their knees and when negotiating, they should be the party dictating their payment terms, not vice-versa.
The Government too should take this opportunity to expand the proposal to extend the Prompt Payment Code so that businesses will have to report the value of invoices they withheld payment for. The information relating to payment terms shouldn't remain buried in quarterly returns, we have an opportunity for enhanced transparency and accountability, if the Government publish a league table of average payment terms and the value of unpaid invoices withheld by major businesses. This is an issue on which the Government needs to be bold - the SME community is with them.
A firm's payment terms tell a greater story about its approach to ethics, integrity, morals and respect. Too many companies are letting themselves and their suppliers down. Billions of pounds of late payments are owed to small firms. It's time to make this a thing of the past.Suggest a correction