Financial institutions, such as Barclays, are exploring ways to develop different financial instruments in a way that will accommodate both the buyers and suppliers needs. © Jonathan Nicholson/NurPhoto/Getty Images
Financial institutions, such as Barclays, are exploring ways to develop different financial instruments in a way that will accommodate both the buyers and suppliers needs. © Jonathan Nicholson/NurPhoto/Getty Images

Find late payment solutions or face legislation, firms warned

Large companies have been warned they must find solutions for the problem of late payment or face government action.

Rob Tuckwell, head of B2B and partnerships at Barclaycard, discussed late payment at the Procurious Big Ideas Summit 2019 and made a strong case for the need for large corporations to take action to resolve issues within the system before the government implements restrictive legislature.

Tuckwell warned: “If we don’t find a solution governments will legislate and it will be forced on large businesses.”

He added: “In this moment in time there’s £13bn owed to small businesses that are late. As a group of larger businesses and multinational corporates we need to look at addressing this. Late payments aren’t good for anyone, we focus on the supplier but what about the buyer community?”

Tuckwell's comments came as chancellor Philip Hammond announced companies will be required to report on payment practices in their annual accounts.

Tuckwell indicated that the volatility caused by an uncertain Brexit will lead “the availability of credit to go down and the cost of credit to go up”, which will be “most acutely felt by small business who don’t have the balance sheet to support them”. Therefore, innovative payment solutions are vital for suppliers so they have alternative options that support them.

It is more cost effective and time saving to take the time to support SMEs in an uncertain, weak supply chain than put in place a replacement supply chain to make up for issues with late payments, according to Tuckwell.

A CIPS spokesperson commented: “Once again this issue rears its ugly head and hasn’t been resolved by the Prompt Payment Code or other initiatives, so it’s obvious something more needs to be done. The issue of late payment affects not only the relationship between purchaser and supplier but is detrimental to good supply chain practice.

“Investment in digital supply chains, and automated processes keeping track of payments and suppliers can improve the issue of timely payments but will only be as effective as the will of those managing the process. And there should be more urgency to create this will because the value of paying promptly cannot be overstated. Late payment hinders business growth and seriously threatens the future of small business which the government has always tried to support.”

In the last couple of years Barclaycard has been coordinating with Paul Uppal, small businesses commissioner, to tackle late payment and ensure fair payment practices. A roundtable meeting was set up by Barclaycard to bring together 20 small businesses to discuss some of the impacts of late payments with Uppal.

Tuckwell said that in the meeting Uppal revealed his findings that the reason companies pay SMEs late commonly falls into three categories: an inefficiency of accounts payable functions within buyer operations (i.e. bad procure-to-pay systems, too many invoices); weak suppliers with low working capital, who don’t have the financial backing or emergency funds to support themselves in cases of late payments; and buyers that purposefully pay late, labelled “the pernicious use of late payments”.

Financial institutions, such as Barclaycard, are exploring ways to develop different financial instruments in a way that will accommodate both the buyers and suppliers. Trade creditor type solutions such as “dynamic discounting and supply finance” are an option, but it is important that the solution has flexibility and also addresses the long procurement tail, said Tuckwell.

Barclaycard has partnered with SAP UK's Ariba Network to create the PrecisionPay, a business-to-business payment product that integrates with an existing accounts payable system, providing an online account that consolidates a supplier base, with added benefits such as early payments and flexible working capital funded by Barclaycard.

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