As a supplier during economic challenging times, there’s one thing that’s worse than seeing your amount of work reduce – and that’s not being paid for work you’ve already completed.
Large businesses, smaller firms and single contractors all innovate to speculate; they use the cash they earn to create new opportunities. Late payments create cash flow concerns that lead to a range of problems.
A reduced cash flow makes it harder to bid for new and upcoming work. And at a time of constrained economic conditions, a lack of incoming cash can make the difference between life and death – particularly for a small business.
Thankfully, the UK government recognises the concerns. Legislation is helping to ensure public sector organisations pay their suppliers in a timely fashion.
In late 2008, the government set out new guidelines that urged local authorities to settle invoices within 10 days and keep cash flow moving during the recession (see further reading, below).
The guidelines have helped cut payment times, but their implementation is far from the end of the story. Research from the Forum of Private Business (FPB) towards the end of last year revealed a tale of considerable differences in payment times (see further reading).
While some authorities settle more than 90% of their bills in ten days or less, other councils appear oblivious to the 10-day target. Overall, the average time local authorities take to pay invoices is almost double the 10-day target.
So much, then, for meeting the government’s aim of speeding up the cash flow to small suppliers. But there is a significant glimmer of hope at the end of the tunnel.
Success at trailblazer organisations has caused the government to return again to payment terms. These trailblazers make best use of available technology to ensure that payment terms are kept as tight as possible.
More than just a means of ensuring contractor survival, pressure on meeting the terms means firms that have taken advantage of electronic purchase-to-pay systems, including eProcurement, document management and workflow technologies, are best-placed to meet government guidelines.
And with more public sector guidelines recently unveiled (see next blog), FDs and IT leaders would be well advised to take a long, hard look at electronic procure-to-pay technologies.