In their business payments barometer published in June, Bottomline Technologies, a company that provides digital payment solutions for a number of different industries, found that 92% of financial decision-makers surveyed admit to paying suppliers late.
What’s not surprising is the fact that businesses pay their suppliers late.
What is surprising, however, is that 92% of those surveyed admit to it.
For small businesses, delayed payments can be a question of life or death: according to data compiled by the Federation of Small Business, 50,000 small companies in the UK fail each year because of clients that pay their invoices too late. This costs the economy around £2.5 billion a year.
There have been some regulatory changes to try to curb late payments, but few seem to have made any difference.
The Duty to Report, which came into effect in 2017, requires businesses to report on payment practices and is intended to shorten payment times and support small business.
Paying suppliers late is a historical problem, but it is one which can be eradicated with new solutions
Data compiled by the Chartered Institute of Procurement and Supply showed that more than 1,000 companies have ignored the rules and have failed to provide sufficient data in the required timeframe.
And the problem appears to be getting slightly worse. According to MarketInvoice, a company that provides invoice financing and business loans, 62% of invoices issued by small to medium-sized enterprises in the UK – worth over £21 billion – were paid late in 2017, up from 60% in 2016. According to the data, food and beverage, energy and wholesale sectors were some of the slowest payers.
While this might not be breaking news, it is still a scandal. Companies that refuse to pay their suppliers on time are stifling the economy and causing good businesses to collapse.
At the same time, smaller suppliers, wary of losing business from larger, more powerful companies, remain reluctant to call them out.
Why do corporates pay their suppliers late? This has little to do with KYC (know your customer), sanctions screening and similar checks, because once the due diligence has been carried out for a supplier at the start of the relationship, there is little need to do this each time a transfer is made.
Some businesses are quick to blame their suppliers – complaining of bad service, bad quality products or delays in delivery.
Others say it is down to liquidity: issues with their own cashflow mean that suppliers have to wait.
But a major cause of late payments is inefficient accounts payable processes – which are still largely manual. Accountants spend hours upon hours matching up incoming bills and outgoing payments across numerous different platforms and this is the cause of most delays.
So, what can speed things up? Supply-chain finance has helped alleviate some of the pain, but businesses are still keen to avoid additional costs associated with taking out extra credit.
According to Bottomline Technologies, cloud-based technology is one solution. This would allow businesses to distribute and track invoices in real time.
Back-office automation will also speed up the process, approving invoices more quickly and cutting down on valuable man hours.
Blockchain technology and cryptocurrencies – buzzwords that are often bandied around at the moment – will also speed up the process and make transactions safer.
Technological innovation makes this ever more likely. And the overall move towards faster payments – and the belief that this is something that not only the individual but businesses will come to expect – will be the main driving force for change.
A shift to more automated, digital means of managing payments started with some of the larger trade finance banks finding the cost of entering new markets too high using legacy systems. Over time, this has cascaded down to smaller financial institutions and will continue to do so as the change gathers pace.
Banks, fintechs and companies across the board are spending millions to upgrade outdated legacy systems that will streamline these processes.
Timely payments could become the norm, so businesses and their suppliers will even be able to negotiate discounts on early payments.
The consequences of this? A stronger economy.
Paying suppliers late is a historical problem, but it is one which can be eradicated with new solutions. Perhaps it's time for big businesses to rethink their strategy on paying late.