On The Prompt Payment Directory suppliers can, using a 5 star scale, rate the payment practices of companies they have done business with, we refer to this as the PPD Score.
The PPD Score is an amalgam of other rating scales that ask three fundamental questions:
One of the main reasons why suppliers prefer not to speak out about poor payment practices is the fear of loosing a piece of business. This suggests that in many cases while a customer may be a late payer the supplier would still rather continue working with them in spite of the risks to their business – suppliers to large supermarkets are a classic point in case.
However, in many cases customers might not intentionally pay late, administrative burdens or errors at either end can cause hold ups. In these instances the supplier might just need to work with a willing customer to find a way around the problem, again not a relationship worth risking.
PPD Score data from the last six months reflects this notion, it broadly shows that as the ‘payment’ score goes up and down over time so to do the ‘relationship’ and future business’ scores.
However while the correlation between the ‘payment’ and ‘relationship’ scores is a very close match it’s not such a close match with the ‘payment’ and ‘future business’ scores. Meaning that while in some cases a payment score may be low and can affect the business relationship it doesn’t necessarily dent the desire to continue working with the customer.
Having said all that, when you look at the kinds of explanations given by customers to account for late payment they paint a familiar picture. Some simply don’t give an explanation but obviously where a customer says they can’t afford to pay, there is cause for concern.
Disputes after a contract has been agreed seem unreasonable but disputes can occur for many different reasons and there will always be two sides to every dispute.
Non payment as a result of issues further up the supply chain should really be an issue that is dealt with in the contract beforehand.
Accounts being too busy is a little rich, it’s the job of the accounts department to pay bills.
Changes in payment terms should also be dealt with at the contract level i.e. ensure that no changes can occur during the contractual period.
“Invoice has been lost” does sound dodgy, but if a PO is required and not quoted on the invoice then even this excuse can be legitimate.
To read more about these kinds of excuses and how to address them read the PPD guide here.
An industry is steadily growing up to help suppliers in the UK navigate the issues related to late payment of commercial debts.
The current batch of tools and services available to suppliers to help tackle the problem can be divided into two categories, those that deal with the issue before it arises and those that deal with it after it has arisen.
The data above from BACS shows that the issue of late payment isn’t abating. While it fluctuates it has yet to show a sustained drop and even if it does, £30bn is a long way to go down.
Added to which the BACS data is a conservative estimate with ABFA indicating the figure could be as high as £67bn and Zurich suggesting as high as £255bn. Indeed the ABFA figures show a steady increase since 2011 with no sign of the issue easing.
The data therefore shows that in spite of all the current tools and services on offer for suppliers to use the impact has yet to be meaningful.
Most people now agree that what is really needed is a significant change in mindset. However, while some think this change needs to come from the customer / large organisation, TLPD believes that in addition it also needs to come from the supplier.
An example of this is highlighted by an anecdote we recently learned of in which a supplier providing goods to a major, retailer submitted an invoice and was only paid part of it. Upon enquiring the retailer explained that they had run a BOGOF on the supplier’s product and that the terms of the contract (which both parties agreed to) stated that such offers would be paid for by the supplier. This resulted is what might loosely be defined under the heading of late or non payment but in fact, while arguably a borderline ethical practice, it was entirely legitimate.
The reason why the supplier was caught out by this was because they had not adequately read the terms of their contract. This is not necessarily the fault of the customer.
As such the change in supplier mindset we are talking about here relates to suppliers accepting a greater level of responsibility and taking more control over their cashflow.
Update: Part two of this post can be read here.