Users of the Prompt Payment Directory have seen payment sentiment rise over the past six months.
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:
- Is the customer likely to pay on time?
- What is the customer like to do business with?
- Would the supplier like to continue working with the customer?
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.