Late payments by large companies are a cancer, costing jobs & inhibiting recovery that has been part of business for far too long, but things might be improving. There might even be a groundswell of actions which will change payment habits across Europe.
Prompt payment codes
There have been many attempts to encourage/force companies to pay on time. Efforts include:
- The 2011 EU directive which has been adopted by 27 out of the 28 member states, sets limits on how long public and private sector companies can keep their suppliers waiting – 30 and 60 days respectively
- The UK’s Prompt Payment Code which sets standards for payment practices and best practice and is administered by the Chartered Institute of Credit Management. Compliance with the principles of the Code is monitored and enforced by the Prompt Payment Code Compliance Board. The 2,000+ signatories have undertaken to:
- 1, Pay suppliers on time: within the terms agreed at the outset of the contract; without attempting to change payment terms retrospectively; without changing practice on length of payment for smaller companies on unreasonable grounds
- 2, Give clear guidance to suppliers: providing suppliers with clear and easily accessible guidance on payment procedures; ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers; advising them promptly if there is any reason why an invoice will not be paid to the agreed terms
- 3. Encourage good practice by requesting that lead suppliers encourage adoption of the code throughout their own supply chains
(The detail in these items indicate the shoddy practices that some use.)
Companies changing their payment and working practices
The increasing focus on SMEs by goverments in the EU and other countries seems to be producing a change of attitude by large MNCs.
In the UK, Asda - the supermarket giant - has announced it is “reducing its payment terms for small suppliers to fourteen days as part of its on-going efforts to work more effectively with its supply base.” The move will benefit around 1200 small suppliers with up to £250,000 business with Asda. The first group of around 430 suppliers will move to the new terms on 1st June 2017.
Not only this, Asda also runs a ‘Sustain and Save’ programme that works with businesses to become more efficient and reduce their operating costs and recently launched a unique ‘app’ that allows its suppliers to share and swap excess products with other companies who may be able to make use of them. This programme has recently been rolled out to the regions to lend further support to local suppliers.
E-invoicing initiatives enable supply chain financing and fewer late payments
There are many initiatives by governments world-wide to improve the use of e-invoicing. An important initiatvie is the European Core Invoice Standard EN16931 which was published on June 28th, the adoption of E-Invoicing will now happen at an even faster pace in Europe. Several activities are in place promoting E-Invoicing as part of the digitization, such as CEF Digital "Connecting Europe".
Key impacts of e-invoicing include:
- reduced processing time, so freeing up the invoice for generation of supply chain finance
- Fewer invoices go ‘astray’, so reducing late payments.
CTMfile take: Asda are to be congratulated on their initiative to help SME by changing their payment practises and also by working with their suppliers to make them more efficient. However, e-invoicing will give the platform for many more iniatives.
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Late payments could put a quarter of UK SMEs at risk of insolvency
Half of all invoices are overdue, Tungsten Corporation study shows AND that the newly appointed Small Business Commissioner has much work to do
Why regulation and codes will fail to achieve prompt payments
We've had directives, codes, initiatives and trial-by-media, but the practice of paying commercial suppliers late, beyond what are considered to be acceptable payment terms, persists across Europe