Delaying payment is just delaying the inevitable
The issue of late payment has loomed large in my life over the past week. Last Tuesday I was in Westminster to attend a roundtable on the issue, which brought together senior figures from banking, government, financial health, accounting and politics.
I have also had emails on the topic flooding in to my inbox in response to the latest SM100 question.
And this weekend I was at a birthday dinner, which concluded with the inevitable, rather awkward process of trying to work out how much each person owed.
Here’s what I’ve learnt:
- Being paid on time is far more important than being paid quickly.
The Government has committed to paying its suppliers within five days and is encouraging those in the private sector to do the same. That’s a good idea, but I do wonder whether it’s the best answer. Might it not be better to allow flexibility in the length of terms but focus on ensuring that they are adhered to? As long as suppliers know exactly when they’ll be paid, they will be able to plan ahead and have a sensible discussion with their bank. I think it’s the lack of consistency that needs to be tackled, not the speed.
- The human element is underestimated.
Another recurring point that arised from the discussion was the reputation, with regards to payment of suppliers, of an extremely large supermarket. There were a number of anecdotes shared about the company, all but one of which was critical. The other was a story about a supplier who had spoken to them and made clear that if she wasn’t paid on time, her business was at risk, and from then on she was paid on time, every time.
I don’t know, but would imagine part of the reason this company has got such a bad reputation is due to its sheer size. The many layers and processes between the buyer and the person handling the invoice is, no doubt, very high. But by communicating on a human level, the supplier was able to sort things out. I think that would be the same in every company, no buyer would want to put their supplier at financial risk, so the more communication there is between the two parties – and if possible the people handling the payment – the better.
- Don’t leave it to the last minute
This applies to both professional and personal life, whether you’re ironing out a contract with a new supplier or settling up a bill for a birthday meal, you should get the details about payment out in the open from the start. To not do so just delays the inevitable, and risks souring the future relationship.
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Procurement cannot control payment delay. For the complete purchasing cycle, user department influences much on who will be the successful bidder. It is also the party who certifies that the supplied goods or service conformed to specifications. I am sure procurement will agree that user department tends to block the payment flow unless the supplier was as what it proposed. By delaying payment, user department aims at scaring the not preferred supplier so that it will not be interested to make offers again Even if the supplier did offer, it would raise prices taking into account “payment delay”. Chance of winning the bid would be jeopardized.
The government may have committed to paying in five days, but sometimes the high-blown ethical desires don’t quite filter down to the working level.
I agree with the sentiment ‘payment on time not quickly’ and would suggest that any large organisation committing to paying within 5 days or even 14 days has to look at the system it has in place to enable that to happen. If it requires too much manual intervention then setting a more realistic payment term that they can consistently hit would be preferable.
“Government has committed to paying its suppliers within five days and is encouraging those in the private sector to do the same”.
In a time of cost cutting, you have to despair if this is true. Surely government bodies could cut thier internal overhead costs by reducing the number of payment runs per month? Hitting a five day target means more resource (either human or IT or more likely both) and thus more cost. If they are really serious about meeting those terms, then there is also a risk of higher bank charges for those occasions when BACS is not fast enough.
Meanwhile, who benefits? When payment terms change, the impact is felt by suppliers only once: at the time of the change itself. A pointless and costly policy.