A practical solution to late payments

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The April 2019 quarterly update from the Chartered Institute of Credit Management (CICM) on the Prompt Payment Code (PPC) made for grim reading. 17 companies were removed or suspended from the Code during the previous quarter, with some household names being very publicly named and shamed.

Despite best intentions, late payments are a feature of business and companies responsible for them shouldn’t be portrayed as villains. The narrative of evil behemoths stitching up independent businesses is simplistic and unhelpful. In fact, the problem tends to stem from under investment in technology rather than a conscious decision to pay suppliers late.

Keeping the lights on

Let’s face it, accounts payable departments are the “Cinderellas” of large organisations. Since they’re cost centres that pay out money rather than revenue generators that process orders (we’ll cover this in more depth in a future blog post on automated order processing, so make sure to subscribe to our blog), accounts payable tends to be under-resourced relative to accounts receivable. Furthermore, many large enterprises operating across geographies lack a central repository for invoices and it takes time to assimilate documents in a processing centre.

In our conversations with accounts payable managers and Financial Directors at large organisations, we often hear it’s simply too difficult and expensive to overhaul long-established operational practices. Management is stretched across multiple business areas and imperatives, leading to paralysis when it comes to document processing. There are not enough hours in the day.



The risks are more than financial

In the long run, under investment inevitably leads to backlogs, with delays in getting suppliers paid spiralling. And for those organisations that do choose to invest in full-scale digital transformation, it can take months (often years) to see material improvements in processing times.

Small suppliers get hit particularly hard, because they lack the necessary clout to ensure prompt payment. According to the Federation of Small Businesses, 50,000 small businesses go under each year because of late payment. The reputational risks for large businesses have never been higher, with those responsible for late payments outed by the CICM in quarterly announcements, not to mention the prospect of brands being admonished by members of the public on social media.

But there is a silver lining for small suppliers, and for large organisations too. Whilst paper invoicing is definitely still prevalent and isn’t going to go away overnight, a meaningful proportion of suppliers now use cloud-based accounting platforms. It’s not just large organisations on Oracle, Microsoft or SAP Ariba – the majority of SMEs use the cloud with packages like Xero and Quickbooks to issue application-generated invoices, which can be emailed to customers and processed 100% accurately and digitally by CloudTrade.

This enables large enterprises to automate documents from small suppliers with lower invoicing volumes, which make up the bulk of their document processing needs. It means adoption is rapid and large scale, with application-generated PDFs received same day as an email attachment and processed within terms, removing paper from the process entirely. Indeed, CloudTrade had over 6,000 organisations send in documents last month alone.

Behind the doom and gloom of recent headlines lies a solution. We need to start talking constructively about how we can help large companies reduce instances of late payment and pay suppliers on time. More often than not, both sides want the same thing.

*The most recent quarterly update, November 2019, saw a further 20 businesses penalised. Read the release here.

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