Calling time on late payment requires more than just regulation

The government has put forward fresh proposals to tackle Britain’s endemic late payment culture, but regulation alone won’t solve this longstanding, multi-faceted issue, says Ben Jackson, CEO at leading early payment provider, Oxygen Finance.

The challenge UK plc faces in dealing with the late payment issue is rarely far from the headlines but was brought into particularly sharp focus around the collapse of Carillion earlier this year. Despite being signatories to the Prompt Payment code, the company was seen as a notoriously late payer, operating standard payment terms of 120 days from receipt of invoice, which routinely put its suppliers under significant, unnecessary cashflow pressures.

There has since been much debate around how to effectively deal with the issue, including detailed input from the Chancellor and the head of the Federation of Small Business, so it was undoubtedly a step in the right direction to see this backed up by further proposals from the Government last week.

Alongside measures to pay SMEs within five days for central government work, small business minister Kelly Tolhurst announced a call for evidence to consider the best way company boards can put in place responsible payment practices throughout their supply chain. This follows a consultation earlier in the summer specifically relating to public sector contracts.

Much has been made of proposals to force larger companies to nominate a board member to ensure that invoices are paid promptly, giving suppliers access to a non-executive director at their largest customers with whom they could address payment issues. However, the fact remains that smaller suppliers are still highly likely to be left grappling with the choice to either suffer late payment in silence or risk being perceived as biting the hand that feeds them.

Lots of the focus has been on large infrastructure and business services suppliers. Due to the critical nature of the services they perform, these businesses typically manage to both negotiate and then maintain sensible payment terms, with the Construction Act along with JCT and NEC forms of contract fair to prime contractors with terms that are often more generous than those of smaller suppliers.  

The issue is that these providers in turn sub contract significant works to smaller suppliers and this can be where the pain occurs. As such, symmetric payment terms in contracts would ensure cash moves through the supply chain more effectively.

Support right from the very top of any organisation is obviously a positive start, but to deliver significant change, we strongly believe any board-level ‘sponsor’ should be looking at a number of further factors to tackle payment performance head-on. These include:

  • Developing an effective payment process that is designed to pay suppliers early or on time - not to hoard cash as we have seen in the past with organisations like Carillion.
  • Appropriately harnessing the use of widely available mature and proven technologies to facilitate better payment practices.
  • Designing an approach that commercially incentivises buyers to pay suppliers in a manner that eradicates financing charges in the supply chain, thereby reducing the overall price charged.

There are sadly no quick fixes to tackling this deep-rooted challenge. Regulation certainly needs to be part of the picture but in isolation it simply hasn’t so far and won’t deliver in future.

Our own experience of working with public and private sector organisations to establish early payment programmes shows that when a holistic and progressive approach is adopted, the benefits to buyer and supplier alike are compelling. Faster streamlined payment practices unlock financial value that can protect public services and improve the profitability of both parties. 

Ben Jackson is the CEO at leading early payment provider, Oxygen Finance.