While historically businesses of all shapes and sizes, across a range of sectors, have been affected by late payments, COVID-19 has taken this issue to a new level – leading to unprecedented disruption across trading, growth and operations.
According to the UK government, currently, £23.4bn worth of late invoices are owed to businesses across Britain – restricting more businesses’ cash flow and working capital. The COVID-19 crisis has only served to spotlight this issue further, as businesses have battled a challenging trading year and have needed to react, reshape and refocus priorities in ways they have never done before – including rethinking how they manage and maintain their cash flow.
The ability to streamline operations and maximise cash flow is always a top concern for corporate treasurers – particularly those with a large global reach. However, with many different stakeholders occupying increasingly complex supply chains, being able to implement and sustain an efficient working capital strategy has often proved difficult.
Indeed, recent research by American Express found that 22% of businesses report that payment flexibility has become more important as a result of the pandemic. And, with the easing of lockdown well under way, successful cash-flow management will play a pivotal role in enabling businesses to emerge from this crisis in a position of strength.
The tightened Prompt Payment Code has sought to tackle the issue of late payments, but so far this has not moved the dial when it comes to getting to the crux of the matter.
For treasurers, the Prompt Payment Code has become a boardroom reputational issue. With Prompt Payment Code data exposing poor payers, this in turn puts these matters on to the radar of consumers. In addition, suppliers have started to take reputation more seriously when it comes to choosing and negotiating contracts. And crucially, poor payment practices may prompt regulatory intervention, meaning the stakes could be even higher for treasurers. Altogether, this highlights the importance of treasurers working to tackle the issue of late payments now.
So, how can treasurers ensure their businesses avoid falling foul of late payments?
As a first step in helping to build a more sustainable supply chain, treasurers should look to provide payment flexibility when it comes to supplier payments, allowing suppliers to take advantage of digital financing tools beyond traditional tools typically only available to large suppliers. In particular, digital working capital tools allow suppliers to get paid shortly after invoices are approved without friction, in exchange for a competitive discount (when compared to typical short-term costs of borrowing). This silver bullet solution ultimately helps suppliers to gain faster access to cash and more control to regulate their cash flow.
It’s not just suppliers who will benefit from faster payments. This is an approach that benefits buyers, too. Indeed, while suppliers can keep better control of their working capital and plan ahead, buyers can also benefit from significant process efficiencies, pay their smaller suppliers earlier in the process and contribute to minimising supply chain disruption.
Additionally, digital tools can help buyers reduce late payments and streamline both the payment and payment collections process. The straightforward and low-cost set-up of such tools means suppliers of all sizes can be supported, unlike more traditional, complex offerings that only offered support to large suppliers. This will also help treasurers to implement such solutions across larger organisations in a low-friction way.
It is therefore unsurprising that over the past year the popularity of digital payment solutions has soared. Our latest research found that a significant number of UK businesses have either mostly or fully automated their payment processes, including receiving payments from business customers (52%) and making payments to suppliers (47%).
In 2021, at a time when businesses are looking to rebuild stronger, it seems to be an opportune moment to confine the issue of late payments to history. Not only will this enable businesses of all sizes to unlock their full potential and improve the growth of their business, but also the growth and efficiency of the wider UK economy.
Businesses must work together to increase resilience against a backdrop of continued economic uncertainty. Embracing innovation and new digital solutions to pay suppliers faster can help businesses to recalibrate for the future and shore up their growth plans, in turn, helping to create a more robust and sustainable trading environment for businesses of all shapes and sizes.
Laurent Playez is head of B2B Europe at American Express. American Express Corporate Payments and Working Capital solutions help to manage businesses and suppliers’ cash flow, providing flexible and digital working capital tools for businesses of all sizes.
