It was revealed in the media recently that Tesco had been withholding payments to shore up their own financial position.
It’s well known that along with other industries such as construction, retail has a particular problem with the late payment of commercial debts. As a large retailer it’s perhaps unsurprising that Tesco should be caught up in this.
But, Tesco is also a signatory of the Prompt Payment Code (PPC), the voluntary code of conduct to which predominantly large organisations sign up and subsequently commit to it’s guidelines and code of conduct regarding the matter of prompt payment.
Tesco’s apparent flouting of that code is not only bad for the grocer but also for the PPC.
It’s not just about Tesco
Whatever the reality of Tesco’s actions, the media furore surrounding them will be far from helpful for the company as it strives to repair both its balance sheet and it’s reputation in the wake the accounting scandal and accompanying SFO investigation. However, by association the PPC does not escape unscathed.
In recent months as research shows the state of late payment in the UK worsening and the value of unpaid invoices mounting, there have been calls for the code to be strengthened. But not everybody agrees that the the code is an effective tool. The trouble with this episode is that it provides more grist to the mills of the Prompt Payment Code’s detractors.
The PPC itself represent’s an institutionalised effort to tackle the issue of late payment and in that respect it is admirable but it is important that it should not be seen as toothless.
One possible problem with the PPC is that it is a voluntary code and at that, one which relies upon the signatories own efforts to do more in changing their ways. Those incumbent ways may not even be intentionally designed to avoid paying supplier invoices, indeed 43% of IoD survey respondents cite onerous bureaucracy as a reason for late payment.
It’s not just about the Prompt Payment Code either…
There are frequent calls for a change in mindset and indeed it is precisely this that is needed but not just among large organisations or indeed any organisation that has a supply chain.
Suppliers themselves also need to adopt a radical change in mindset and come out from behind the sofa. This is not to say that there should be open warfare, far from it, simply that there should be more transparency around late payment (again another often cited change that is needed) and crucially more context around the reasons for late payment.
This is where creditors can share their experiences – anonymously or otherwise, the sum of which can help suppliers make better decisions and offset the spectre of late payment before signing contracts.
Prevention is better than cure.