Multinationals took some stick last month as the UK Labour party leader Jeremy Corbyn accused them of abusing their relationships with suppliers by paying late. He said: “Cash is king for any business, and big companies are managing their cash by borrowing – interest-free – from their suppliers.” He's not the only one who thinks so. EU Commissioner Elżbieta Bieńkowska said in February this year: “Late payments are a major burden for Europe's companies, especially small ones.”
And it seems that too many big companies aren't doing enough to facilitate and promote a healthy, timely payments environment for their suppliers. Research by PwC and the Supply Chain Finance Community found in December last year that only one in 10 corporates with a revenue below €1 billion offers a supply chain finance (SCF) programme to their suppliers. And for corporates of all sizes, the majority have included fewer than 100 suppliers on their programme.
Governments have tried to address this by introducing voluntary codes to nudge companies to do the right thing by their suppliers – but it remains very much part of big corporate culture to seek 'efficiencies' wherever possible. And this often means squeezing the supply chain. Achieving efficiencies in payables outstanding is very much a part of the internal financial goals that companies set themselves – but in being more efficient, could you be harming your suppliers? If you can answer yes to most of the questions below, you're probably already doing more than most to promote a good payments environment for your supply chain.
Do you have a supply chain finance programme?
As shown by research done by PwC and the Supply Chain Finance Community, while 65 per cent of companies with revenue greater than €1 billion currently run a SCF programme, the percentage is far lower for companies with revenues under €1 billion. An important consideration is also how many suppliers are onboarded to your programme. Some companies select suppliers for the SCF programme according to spend. If this is the case in your company, should you consider expanding the selection criteria to offer the programme to more of your suppliers?
Are you a member of a voluntary prompt payment code programme?
UK corporates are encouraged to sign up to the Prompt Payment Code, which sets standards for payment practices, while in the US there's SupplierPay and in the Netherlands there's a similar programme called Betaalme.nu (Pay me now). Signing up to one of these voluntary schemes shows a willingness to pay suppliers on time. If you're not sure what the Prompt Payment Code is, read more here.
Are you up-to-date on the EU Late Payment directive?
The EU's Late Payment Directive (Directive 2011/7/EU) requires European Economic Area (EEA) countries to adhere to 'a decisive shift to a culture of prompt payment'. In the UK, the EU directive was implemented through the Late Payment of Commercial Debts Regulations 2013 (SI 395/2013). However, many say that the directive is completely ineffective and that not enough is being done to tackle the culture of late payments in business.
Do you use P-cards to pay some suppliers?
These allow larger corporates to maintain their longer payment terms and improves payments efficiency, while also allow smaller and medium-sized suppliers to be paid much sooner. But this article asks whether the savings from p-cards aren't in fact offset by higher supplier prices?
Do you support standardising KYC requirements for onboarding new suppliers?
Having a central repository of data on suppliers that would enable the providers of supply chain finance programmes to easily check verified KYC data would ease the administrative burden on smaller suppliers, who often find the process of providing required documentation onerous.
Are you embracing fintech solutions or bank supply chain financing programmes that could ensure your suppliers are paid on time?
Software companies such as C2FO, Taulia, Basware, Ariba and Prime Revenue are some of the fintechs offering supply chain services to buyers and sellers, while some of the traditional big banks have also launched their own fintech projects – see here for more detail on why 'Corporates must look to fintechs for capital in the supply chain'
Late payments could put a quarter of UK SMEs at risk of insolvency
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EU Late Payment Directive - as useless as a fish on a bicycle
Informita not happy with progress of directive report although good progress on checking trade terms world-wide
Late payment is costing UK’s SMEs £11bn a year
Small and medium-sized enterprises in the UK are spending up to £11 billion a year on chasing late payments from suppliers.