Late payment – File on Four doesn’t quite get to the heart of it

We mentioned in the Down the Procurement Pub post last week that the  BBC Radio 4 File on Four documentary featured the topic of late payments. It was a well put together programme that didn’t resort to sensationalism as some do, but ultimately it was unsatisfying – we’ll explain why later.

Now when payments are mentioned, many procurement people will say “not my problem” and immediately switch off. That’s the job of those dull people in accounts payable, isn’t it? Well, no, not really. Payment is the final stage in the transactional, purchase to pay cycle, and logically if anyone should take responsibility for that entire process, it should be procurement and the CPO. Payment efficiency and effectiveness depends so much on the earlier stages of the process, from supplier adoption to requisitioning and ordering, that procurement can’t really absolve itself of responsibility .

But back to the programme. It looked at cases where suppliers aren’t being paid promptly, with a particular focus on the public (government) sector. They started with a construction contractor in the North-East of England. 80% of their projects were paid late, whilst outstanding payments accounted for 15% of their turnover, and this was restricting growth and recruitment.

At a more macro level, the programme featured exclusive research from BACS, the payment business owned by banks. It has created a panel of 350 businesses to carry out research on payments, and from their analysis they estimate that UK businesses are owed £46.1 billion currently. Most worryingly, that number has trebled since 2006. And of course, the majority is owed to SMEs simply because small firms still make up most of the economy.

Firms are supposed to publish their payment performance now, but the Government’s prompt payment code of 2009 is voluntary. The UK’s top 350 firms were told they would be named and shamed if they didn’t sign up – but the CEO of the Institute of Credit Management said that “75 of the FTSE 250 have signed up”.

The journalist replied, “ that seems very disappointing – only half of the FTSE 350”? (Can’t BBC journalists do arithmetic? And are we talking FTSE 250 or 350?)

Anyway, there isn't much sign of naming and shaming, so then we came onto government’s own performance, but the programme couldn’t get any Ministers to participate. The Geordie builder was finding that local authority contracts accounted for half his late payment problems. His most overdue account at 219 days was school work – but he wouldn’t say which local authority (assuming it wasn’t an Academy of course) was the guilty party, for fear of losing future work.

And that’s part of the problem. If suppliers are scared to name buyers, that won’t help change things. We should have had the BBC banging down the doors of that authority, shouting “give him his money”. That would have made it a more interesting programme.

Large prime contractors also hold back payments to small sub-contractors, improving their own balance sheets of course. A case study in the programme fingered NPS, a business owned by Norfolk Council, for late payment. NPS also told a supplier it was “not group policy” to pay late payment charges, even though they are legally obliged to pay those charges. NPS claimed the supplier had “failed to include a PO number” on the invoice (which the supplier denies).

Firms are also having problems with the NHS, with many payments going through NHS Shared Business Services (NHS SBS). The programme featured a feisty CEO from a small medical equipment firm who said that with NHS SBS, “almost every invoice is late”. He is charging interest plus legal fees regularly now, as permitted by legislation. SBS wouldn’t be interviewed, but said they paid “83% of invoices within terms” and delays were often suppliers’ fault .

The problem with the programme - and that SBS case is a good example - was that whilst the stories were relevant, it didn’t really get into the reasons why late payment happens. There’s a number of various causes and therefore the action that is needed differs between deliberate late payment and late payment caused by incompetence or inefficiency on the supplier or buyer side.

For instance, we know NHS SBS uses both OB10 and now Tradeshift technology in the invoicing area. So we really need to understand better what lies at the heart of their issues, rather than just assuming it is buyers being horrible people. And what about the role of technology? Are systems making things better or worse? And how might supply chain finance options change matters? All these issues and more weren’t addressed, which made the programme ultimately interesting but somewhat simplistic for a professional audience.

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