Companies Must Now Set Out Their Payment Practices in Annual Reports
Since his Spring Statement when the possibility for fines on late payers was announced, Chancellor, Philip Hammond has had AP departments scrambling to get their acts together and put measures in place to get significantly more organised with regards to payment processing. If your business has not yet begun looking at ways to reduce the length of the payment timeline, this article may be a push in the right direction.
Basically, small businesses have been receiving the brunt of late payment practices and measures have now been put in place to tackle the epidemic. Almost unbelievable, but true, these late payment practices by larger firms have had the effect of forcing approximately 50,000 businesses to close – every year! That statistic may come as a shock, but as staggering as that may be, it is sadly true and something had to be done about it.
This is where advocates and activists came in and took matters into their own hands, spearheaded by a few main people.
One owner of a medium-sized marketing business suggested that a certain proportion of invoices, relative to the size and amount of invoices incurred by large firms, should be paid automatically, upon receipt, without having to go through the approval processes in place in AP departments. This business owner even went as far as to propose that if the company who used the services of a small business did not pay the invoice under a particular amount swiftly, then there should be a mark placed against their credit rating.
Small businesses around the country are probably rejoicing at this idea, but the AP departments within larger firms know that it’s not that simple.
Another suggestion was to make amendments to the Prompt Payment Code. As a voluntary code of conduct, it should instead be made mandatory for all companies over a certain size to sign up to, and all suppliers must be paid within 30 days of invoicing rather than the 60 days that is currently stipulated within the code. This at least still enables AP staff to follow process and ensure relevant and regulatory procedures are adhered to, allowing time for their processes, but still ensures that suppliers are paid within a fair timeframe and know that they can expect their invoices to be settled in a limited time period.
This would be welcome news for small business owners and employees who reportedly spend hours and hours chasing their invoices, leading to time wasting and additional paperwork and costs just trying to ensure they get paid for services rendered or products supplied, not to mention the cash flow problems that large businesses who delay payments can cause to small businesses who rely on being paid timeously!
It’s a sad state of affairs since small businesses will often take on any business that they can in order to keep afloat, or grow. Large companies have generally always had the upper hand because they know this and expect a lot from the smaller businesses that they deal with.
The Federation of Small Businesses (FSB) has urged the government to do a lot more about this vast problem. We want small businesses to thrive and contribute to the economy, but how can they when such a large number of them are closing and severely struggling with cash flow issues due to non- or late payment? It’s an uphill battle for them and larger companies and their AP departments need to take heed.
In the campaign launched recently by the FSB, they call for large businesses to make a non-executive director the responsible person for the payment practices implemented within the company. Under the Duty to Report legislation, the FSB wants payment practices to be reported on publicly, and fines to be levied if this is not done. As part of the campaign, the FSB is also pushing for all substantial contracts within the public sector to have dedicated project bank accounts from which payments to its supply chain are made within a maximum of five days.
All in all, larger businesses need to have a more prudent approach to their accounts payable practices and there should be a much greater level of collaboration between the accounts payable department and procurement departments, not to mention co-operation with senior management.
This matter is not just about making sure that invoices are moved through company’s processes promptly and paid timeously, but also implementing prioritisation strategies to improve payables and liberate working capital in order to encourage growth.