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.
Below we set out in a bit more detail what these mean and how you should react if you see them on our directory when doing due diligence on a company.
This highlights the critical importance of pre-agreed payment terms. While there is a strong drive to mandate statutory payment terms to be 30 days this is till not the case.
Always make sure you find out what your new customers payment terms are and if they don’t match yours make sure you have pre-agreed payment terms in place or that you are happy with their payment terms.
Remember that large organisations may operate different payment terms in different parts of their business so do not assume that one set of payment terms is the same throughout the business.
There are two sides to every dispute, in this case the dispute may revolve around some element of contractual obligation. While you may not want to tarnish a new business relationship by raising the possibility of contractual dispute, if the job is very high value agreeing a process for contractual dispute should be part of the principal agreement.
You should also structure your contract in such a way that your invoices do not go unpaid should you be prevented from delivering your goods or services due to the action of inaction of a third party that does not form part of your own cost of doing business.
If you see this explanation given against any payment rating for businesses you are researching on The Prompt Payment Directory then be sure to find out what day the clerk is due in. Also, do ask if there are any exceptional circumstances when that might change and what to do about it if it does change.
If you see this as the reason given for late payment for a company you are researching on our directory, your next step should be to obtain a credit report from any of the major credit agencies. At the very least get a copy of the most up to date final accounts for the company your are about to do business with.
If you decide to go ahead you should look into the possibility of splitting the payment, part in advance and part in arrears with as much taken in advance as possible. If you have to bear costs in order to complete the work, you should at least ask for the advance to cover the cost of materials.
Before signing a contract or agreeing to move ahead, check your customer’s payment terms, if they differ from yours be sure to pre-agree payment terms in writing and, most important of all, ensure that the contract stipulates the pre-agreed payment terms are to last for the duration of the contract.
NB: These are not the top five most used explanations nationwide, just what has been recored on our directory and they are subject to change.