Prompt payment should be everyone’s new year resolution

8 January 2014 | Philip Dunne

Philip Dunne, UK minister for defence, equipment, support and technologyThere was a mischievous attempt before Christmas to claim payments for products and services by the Ministry of Defence are being processed late. With 20 years’ business experience, I am acutely aware of the importance of maintaining an effective supply chain and the cash flow difficulties caused by the late settlement of payments, particularly to SMEs.

So it is time to set the record straight on the MoD’s payments performance, and to challenge our prime contractors to match our high standards of punctuality, which we believe are leading the way in government payments.

Not only did we pay all correctly submitted invoices within 30 days during the 2012-13 financial year as required by legislation, but we exceeded expectations by paying almost 100 per cent of such invoices within 11 days – less than half the time permitted - and over 90 per cent within five days. This is, by any measure, a major achievement given that we handle five million invoices totalling over £20 billion each year.

In fact, the MoD made only one single interest payment for late invoice settlement during the previous financial year 2011/12, and no such charges have been incurred since. This is a record that I am proud to stand behind.

But I am not complacent; so I looked into this single penalty case. It related to an invoice for fuel supplied to our sovereign air base in Cyprus, by a Greek company which submitted the invoice over the Christmas holiday period.

But there is always more that can be done, particularly to help the many small and medium-sized enterprises in our supply chain. Every year, thousands of businesses experience severe cash flow problems, simply because they are not paid on time. SMEs can be particularly reliant upon a small number of key customers, where the impact of late payments can be compounded: straining relationships with their own suppliers, and in extreme cases creating difficulties in paying their own staff with knock-on consequences for families and local communities.

This government wants to create an environment in which businesses can expect to be paid on time. That’s why in December we published Building a Responsible Payment Culture, a discussion paper looking at how we can help tackle late payment. This includes how payment practices can be made more transparent, accountability enhanced and how we can encourage those firms that are paid late to exercise their statutory rights.

The discussion paper is open for responses until the end of January and I urge businesses to have their say. Our aim is to make the UK the best place to start and run a business.

For the MoD’s part, I am keen that we pay our suppliers through our new electronic bill paying system wherever possible, improving efficiency and reducing bureaucracy for our suppliers. Incorrectly submitted invoices cause hold ups and barriers for organisations of all sizes. New and better ways of doing things always raise their own challenges initially, but we are committed to helping our suppliers adapt to the new system, focusing on ensuring invoices are submitted correctly the first time to avoid delays.

Cash flow issues can cascade down the supply chain from contractors to subcontractors. The MoD now includes a standard condition in all our new contracts, requiring contractors to provide for payment of invoices within 30 days in all subcontracts, and to flow this requirement down through their supply chains.

Turning these into hard cash requires commitment and integrity, which is a challenge for us and all our contractors, but together we must rise to it to maintain the strength of supply chains.

Prompt payment is everyone’s responsibility. For this reason, the MoD is committed to making prompt payment to our suppliers and I shall also this year be encouraging our prime contractors and all those in our defence supply chain to pass on the good service they receive, and make prompt payments the top of their new year’s resolutions.

Philip Dunne is the UK minister for defence, equipment, support and technology

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