Payment practices review offers chance for business health check

Gerard Chick
16 August 2015

From April next year new regulation will see all quoted companies and limited liability partnerships (LLPs) required to publish details of their payment practices.

The aim of the Small Business, Enterprise and Employment Act is to help improve SMEs’ payment terms by enabling them to identify good and bad payers and those businesses which offer suppliers terms that fit best with their business model.

The UK government plans to make the details publically available via a central online portal and it will enable data to be collected on a range of payment factors including dispute resolution processes, e-invoicing, preferred suppliers and supply chain finance.

Finance directors will be required to publish a quarterly report on their website and failure to demonstrate reasonable steps to secure compliance have been met may result in a substantial fine.

Although at first this level of compliance and reporting will no doubt be considered a massive headache for many, surely a more positive way to approach it is to see it as a business health check, an opportunity to analyse payment practices and examine supply chains and contracts.

Procurement and finance will have to work together to establish and prove complaint processes within the next year and this process may well unearth a number of inefficiencies and risks that need dealing with.

For example, robust supplier contract management processes will be essential to ensure that the terms agreed with suppliers fall within good practice. It may also force a review of supplier relationships and contract terms. If the business needs to pay on shorter terms it may need to innovate its supply chain to make that financially possible.

The fairness and transparency of the tendering process will also need to be looked at and companies will have to ensure they demonstrate that tender reviews and preferred supplier lists are founded on fair practice.

The regulation could also lead to businesses assessing how their supplier relationships are managed, potentially moving from a very one-sided relationship to a more collaborative, two way flow of information that might help keep suppliers informed, engaged and satisfied.

This regulation will soon be upon us and if businesses want to avoid a big black mark against their name it’s time to start thinking about making a start on that procurement health check. You never know, your business might benefit from it too.

Gerard Chick is chief knowledge officer at Optimum Procurement Group

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