As mentioned in previous posts, not all late payment is due to intentional efforts to avoid payment as is so often alluded to in the press.
The popular narrative is that large publicly listed organisations like to delay payment to their suppliers for as long as possible in order to massage their balance sheets and pump up their share value. Indeed there are plenty of examples of this (although care should be taken not to conflate supply chain bullying with late payment).
But in lots of cases late payment can be just as easily attributed to administrative burden at the customer end or mistakes made by suppliers in submitting their invoices.
As part of their voluntary commitment, signatories to the Prompt Payment Code are given the option to complete a form which provides information that suppliers need to ensure they are paid on time.
Unfortunately this form is, like much else relating to the Prompt Payment Code, voluntary. As such many signatories, including some of the highest profile like Tesco, have yet to complete it (at the time of writing). However, it provides a nice template that can be used by all suppliers when entering into a business contract with a customer of any size
The form (an example of which can be seen here) sets out nine key areas of information which suppliers should enquire about. They are as follows:
This is obvious especially if invoices still have to be submitted in hard copy and by post. It’s also worth checking that the address to which the invoice must be submitted is also the address that should be put at the top of the invoice. Some companies require that all details displayed on invoices should be 100% correct in order for the invoice to be processed and payment made, it is possible that the address to which an invoice be physically sent and the nominal billing address can be different so it makes sense to check first.
Of course if invoices are submitted via email then check the email address is correct, however it’s still worth confirming what billing address should be put at the top of the invoice.
Some organisations operate a purchase order (PO) system and some don’t. It’s important to find out…:
Not quoting a purchase order number, if one has been issued, will almost certainly hold up payment.
This could be anything. It could include:
You won’t know exactly what needs to go on the invoice unless you ask.
It’s possible that there will be no specific requirements but if there are and these do not appear then the invoice will take longer to process.
Additionally, the invoice may not actually be looked at until the payment deadline approaches and because of this it could be returned with a request for an amendment which, if not completed in time, might push the invoice back into the next cycle thereby delaying payment.
Check when these are. If possible get exact dates or days e.g. last Friday of each month.
The invoice approval process is a set of internal checks that are required before payment can be made. These are supposed to prevent money from being paid out without the correct authorisation. This approval process takes time. A nice summary of the process can be found here.
Make sure you know how long the invoice approval process is and how it relates to your agreed payment terms.
It follows that invoices must be submitted by a certain period which accommodates both the agreed payment terms and the invoice approval period. But to ensure that all ‘i’s are dotted and all ‘t’s are crossed suppliers should find out when to to submit their invoices. Ideally get a date or day on each month.
Suppliers should make sure they know exactly who to send invoices to, this means:
It also makes sense to have a back up set of contact details in the event that the primary contact is away.
Quite often the contact email address to which invoices should be sent is a generic one such as firstname.lastname@example.org . If this is case you (the supplier) will not know exactly who is responsible for your invoice.
In this event always copy in your business contact when sending invoices. Also still try and gather a name and contact number for the individual(s) in the finance department who will deal with your invoice.
Ask how disputes are dealt with, this should also be written into the contract.
Dispute resolution could be dealt with via a disputes department or the person who made the original purchase of the supplier goods / services.
Regardless be prepared to escalate if need be.
This mainly refers to e-invoicing systems as opposed to simply sending invoices via email.
The e-invoicing service sector is a growing industry in it’s own right and organisations are now starting to use these tools as part of the wider procurement process.
Using an e-invoicing system can help cut down on bureaucracy and reduce uncertainty around the invoicing processes but an investment may be required on the part of the supplier.
This is where you (the supplier) may have to negotiate but it is vital that this issue is addressed in advance. Your payment terms of 30 days may not match your customer’s payment terms. If this is left unresolved your customer could assert that their payment terms of 60 or 90 days prevail.
This is where disputes unintentionally begin; where they end is often the bigger problem.
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.
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.
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.