Supporting your partners: why staying on top of payments might be about to be more than honest practise
Paying bills and making payments affects each and every one of us every month of our adult lives. For most of us, we have the income to ensure that all our bills can be paid on time whenever possible.
Yet when this relates to businesses - payments aren’t always made for the date the invoice is stamped with. This could be put down to a number of contributing factors, like cash flow issues, disputes over the goods or service received or the workload of finance teams meaning they fall behind on actioning payments. It may even be because there’s no short-term tangible consequence for a business that chooses to pay late.
When it comes to big businesses, incoming late payments might not have the same impact or potential damage that a late payment can have on a small business, which relies more heavily on its cash-flow to function month-to-month.
In fact, according to the Federation of Small Businesses (FSB), 50,000 small firms go out of business every year in the UK due to late-paying clients. Showing just how important it is for all businesses to keep up with payments to their suppliers and partners.
Penalties for late payments
This might be about to extend further than just a moral standpoint for businesses to support one another - something which we have seen many great examples of this year as companies supported partners in their supply chain or customers who use their products in reaction to the pandemic. We saw software businesses giving free user licences to customers who had switched to remote working and even, in some sectors, large businesses released support packages for partners. So we know there is a will among UK businesses to have one another's back when times are tough.
It was announced right at the end of September that the Small Business Commissioner may be able to issue fines to companies who pay their suppliers late. This proposal is currently in the consultation stage and businesses have until 24 December this year to make their thoughts heard on it.
The plan is part of wider consultation to extend the Small Business Commissioner’s powers. If this legislation is passed, it will mean that businesses, especially medium to large ones, will be made to pay suppliers as a lump sum or as part of a payment plan, and if this isn’t stuck to - businesses could face penalties.
The issue of late payments has always been a key topic in the world of finance, and it has only been exacerbated by the Covid-19 pandemic. According to the Government’s Small Business Minister, Paul Scully, £23,4bn is owed to SMEs in the UK - costing those businesses collectively £4.4bn a year to chase the money they are owed.
How can businesses ensure payment on time?
It gives businesses food for thought whether this legislation passes or not, how can we ensure that we are paying our suppliers and partners on time unless there is a legitimate reason why we can’t? It’s not a straightforward one, especially as depending on what your business does and where it is based right now in the UK, it might be facing differing restrictions affecting its revenue and cash flow.
Taking a look at your finance teams accounting practices and support tools might be a good place to start to help ensure payments are kept up to date. Are invoices being held up at the approval stage or at the payment stage? Technology like machine learning and automation can mean that invoices are automatically given the green light and approved to be paid. And payment plans and automation can be set up so your finance team doesn’t have to manually action every single invoice. Only invoices that have discrepancies will then need your teams’ attention to resolve so an accurate payment can be made.
This year has been really tough for UK businesses, but supporting one another is one way we can help to protect organisations and jobs. Making payments on time where we can, could make a massive difference to our partners and suppliers.
To find out more about Access Financials purchase automation software, visit here.
