Should Governments Intervene When Companies Pay Late?

As a small business owner as well as a student of the P2P market, I can say with true authority that late payment has become endemic. It seems that only a minority of companies pay within expected windows and many are finding new and creative ways of kicking out invoices from systems. For example, we recently had one relatively small invoice kicked out of an e-procurement system for multiple reasons on multiple occasions which could have been handled in a single request update (e.g., if a business entity name has changed and a PO number is incorrect or updated, why not let the supplier know a single time to resolve the matter rather than requiring multiple re-submissions over a period of time?). Alas, most companies aren't in business to make supplier's lives easier. But perhaps they should be paying more attention to how difficult they're making them from a delayed payment standpoint, lest governments begin to legislate requirements and penalties for misbehavior.

Purchasing Insight recently ran a fascinating story that looks at how the European parliament has "approved legislation to crack down on late payment tactics of big business" with an "aim is to encourage business to move away from 60, 90 and even 120 day payment terms to 30 days and allow small businesses to claim interest when payments are made late and recover cost associated with chasing late payers." The post then goes on to highlight some of the philosophical challenges of government involvement in an issue that is probably best left for industry to resolve for itself -- especially in environments as culturally diverse as the EU. I like the suggestion that "what would be more effective is legislation to encourage business to take more seriously their obligation to pay to terms agreed between buyer and suppliers by encouraging the wider use of purchase to pay techniques and technologies such as electronic invoicing that make payment processes more accurate and easy to manage."

Despite my quibbles with how one large buying organization has configured their P2P environment to individually reject invoices for errors rather than addressing problems all at once, there are still massive advantages when it comes to resolving late payment issues by bringing the PO, invoicing, approvals and payment process online, starting first with the process and timing visibility such an approach enables. This in turn can pave the way for early payment discounting models that puts suppliers in control while benefiting buying organizations that can profit from oversized APRs. In short, rather than legislating what it does not fully understand the implications of, perhaps the European parliament and other government bodies should be providing subsidies or credits for investment in invoicing and payment systems/models that fix what is broken in the first place with an approach that provide anything but a binary, zero-sum solution to late payment.

Jason Busch

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