Organisations that focus on “silver bullet” technical solutions to solve late payment risk overlooking the importance of a “good payment culture”, according to a report.
The report, by campaign group Good Business Pays, said behaviours around dependability and fair principles were more important to ensure suppliers are paid on time than “technological solutions or business processes”.
The report said: “Once business leaders apply behaviours that embody dependability and fair principles consistently across their business, payment practice is respectful and timely. The wider working culture of a business naturally informs the supplier payment process.”
Previous research by Ivalua found six in 10 (59%) UK businesses said suppliers were terminating their relationships with firms due to repeated late payments, and 62% said late payments had “significantly damaged” relationships with suppliers.
Liz Barclay, the UK small business commissioner, said: “Fast payers are firms with a strong sense of purpose and have translated vision and values into their everyday operations. They are led by people who understand their purpose and how they deliver value to customers.
“The key point in the report for me is that paying suppliers fast and fair is a behaviour, set by the leadership and followed by management. It’s part of business culture and of the fabric of a business rather than about technological solutions or business processes. The culture permeates the organisation, the board supports it, and management brings it to life.”
The report, Understanding Payment Culture Insights from the Fastest Paying Companies in the UK, looked into the payment culture of 101 firms which were deemed to have “good payment culture” to examine how this was achieved.
Terry Corby, CEO of Good Business Pays, said timely payment started with treating suppliers with the same “integrity” as a business's customers and shareholders.
“These organisations have strong values and crucially they have been able to translate the values spelled out on their website into practical operations that all their executives live by. Including those who work in finance, procurement and their accounts payable teams. The results are strong and thriving partnerships with their suppliers.”
Fair payment culture further attracts talent to businesses, the report said, citing research by Barclays Bank which found 58% of potential employees said they would refuse a job with a company if they were known for paying late.
The Federation of Small Businesses found at the beginning of 2022 that 440,000 small firms were at risk of closing due to late payments. The cost of living crisis has made this risk more acute and highlights the need to improve payment terms.
The report listed five ways organisations can improve their payment culture:
1. Understanding fast payments is a decision
The report highlighted how in 2018 only 19% of Pizza Express’ invoices were paid in less than 30 days and over 80% of suppliers had to wait much longer.
However, when there was a change of governance in the company in 2020 it saw a “significant upsurge” in timely payments. In 2021 Pizza Express paid almost 80% of its suppliers in under 30 days – an almost 60 percentage point increase.
“Major changes to payment culture only seem to happen when there is a big change in a company that impacts its overall company culture,” the report said. This included changes of leadership and external financial, reputational or supply chain risks. It is therefore important to capitalise on big moments of change – or risk – and ensure that good payment culture is at the heart of any changes in business approach.
2. Payment culture is an extension of good company culture
Businesses that pay suppliers on time have a “strong sense of purpose”, which is “communicated through clear commitments and carried through to reported actions”.
“The results produced by this report provide proof that fast payment to suppliers is part of business culture, a behaviour that is repeated over time and forms the basis of fair, just, and considerate company values.”
The report said fair payment culture was “part of the fabric” of these businesses, and therefore cannot be achieved through “silver bullet” technology solutions alone or business processes (although these can help). “The tone of company culture is set by the board of directors and reinforced by management who bring to life the culture in a set of operational practices.”
3. Public commitment to the role of suppliers
Of the 101 firms highlighted for paying suppliers on time, “almost all publicly state suppliers’ role in serving customers, their commitment to employees, shareholders and in the communities they serve”.
Beth Hart, VP of supply chain and brand trust for McDonald’s UK and Ireland, which on average pays its suppliers in six days and only 1% of invoices end up being paid later than agreed terms, said in February: “Our suppliers are an essential and valued part of our business as they help us to serve great food to our customers in restaurants across the UK [...] It’s the responsibility of all big businesses to play their part in supporting the small businesses that are the backbone of the UK economy.”
4. Leadership is integral for creating healthy payment culture
The report found the average combined length of service within the same company for the chief executive and chief finance officer was almost 21 years. It said a consistent leadership with clear vision was integral to placing suppliers at the heart of payment culture.
“It’s clear [these CEOs and CFOs] understand the purpose of their company and how it delivers value to their customers. These leaders understand their market well and the ecosystem of supply that makes it work. We believe that consistency makes it easier for managers and employees to implement a fast payment culture, by creating an atmosphere where company values stated in documents can safely be reinforced and operationalised over time.”
5. Fast payment culture is embedded into culture, rather than a marketing exercise
A consistent finding across all the companies labelled “fast payers” by Good Business Pays was that fast payments was not something these companies highlighted in marketing or “bragged” about in company results.
“There appears to be a level of quiet humility in these organisations; fairness towards clients and employees alike being part of their corporate DNA,” the report said.
Good Business Pays, established in 2021 to highlight payment practices, introduced the annual Fast Payer Award, which is awarded to companies who pay their suppliers on average in 30 days or less.