City A.M. Newspaper in the UK reported last week that, “Frontline staff at a major subsidiary of WPP-owned Kantar this week received an email telling them to wait until next year before paying outstanding invoices.” Apparently, this is to, “To help bolster Christmas cash coffers by delaying critical supplier payments.” So much for the Late Payments Code.
Late payments have been going on for years and are a cancer
In reaction to Diageo extending their payment period in January 2015, CTMfile file carried an item titled, “Late payments by large companies are a cancer, costing jobs & inhibiting recovery.”
Yet the 2011 EU Directive on late payment which had been adopted by 27 out of the 28 member states, already set limits on how long public and private sector companies can keep their suppliers waiting – 30 and 60 days respectively.
NEVERTHELESS, Sir Martin Sorrell, WPP CEO - who had his pay cut to calm investors by WPP board - still encourages this type of behaviour.
But funding costs are so low that it doesn’t make much sense. Not only this, new AI technology is coming to market that makes it even more stupid. The supply chain finance can be a win-win for the SMEs as well as the MNCs.
New AI based SCF technology
A fintech company, Previse, is coming to market with a new artificial intelligence based solution to minimise the risk of funding SME’s early AND make extra profits rather than screwing the SMEs, who are the back line in most countries’ economy.
Commenting on the WPP email, Paul Christensen, CEO of instant payment decisions company Previse, said:
- “The key to solving the problem of slow payments is to show buyers, like WPP, that they, like their suppliers, have far more to gain from paying as quickly as possible than from delaying payments.”
- “Measures such as the prompt payment code will help increase pressure on companies to speed up their payments by increasing public scrutiny on slow payers. I think many large buyers are really beginning to take notice of that legislation, which will no doubt improve the situation.
- Slow payments mean that a huge amount of money is wasted and suppliers’ businesses are damaged.”
Christensen believes that. “The key is to give buyers the tools and incentives to implement a faster system. Technology such as Previse’s not only enables suppliers to be paid instantly by moving payment decisions away from a slow process driven model to a faster, automated, data-driven model, but, crucially, shares the economic benefit of that between all parties.”
CTMfile take: Although, new technology is a must to reduce the risk involved in funding the SMEs in the supply chain, solving the late payment problem also requires management at MNCs of all sizes to be decent and fair. They need to accept that SMEs are important and that exploiting them continually does not work. As Christensen points out, we need to share the “the economic benefits between all parties”, but too many CEOs, and CFOs don’t believe in sharing.
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