Tech’s just one piece of the jigsaw

One of the main questions in discussion this week has been why small suppliers are still struggling to get paid on time given the digital era.  

There’s no doubt that payments have improved over the years. Average days to pay are down to around 32 days depending on the survey you read. The percentage of invoices paid outside the agreed terms is also down, again by how much depending on who has carried out the survey. Most of that improvement, sadly, is down to technology. I say sadly because I’d prefer it if I could say hand on heart that the improvements in payment practices are down to improved understanding of the needs of small suppliers, better processes being a priority for bigger customers, and an overall improvement in payment culture.  

Many bigger customers do understand that their own business fares better if they nurture their valuable suppliers. They are working out how to tell which suppliers are small businesses, what their needs are and how to work better with them in partnership to build stronger relationships with more sustainable and resilient supply chains. The Fair Payment Code applicants are showing they’re determined to get their payment practices up to Gold standard and putting time, effort and money into doing just that. As one fellow panel member at the Accountex show at Excel in London on Wednesday said ‘we found lots of glitches in our processes, which we had to iron out in order to get a Gold Award. It really did focus our attention on how to make payments quicker and easier’.  

We want to hear from more businesses taking that approach. We want Boards to get involved in the conversations and ask ‘how well do we pay our suppliers’. We’re not there yet.  

Things are changing and technology is playing its part. A large percentage of micro businesses are using technology to get paid. They don’t offer trade credit to their customers and expect to be paid by direct debit immediately. That’s one option for many but not for all. For those who do operate in a business environment where trade credit is expected the question is ‘how long’?  We need better contracting where the bigger customer doesn’t simply present payment terms to the supplier and expect them to roll over and accept. The smaller supplier has every right to offer trade credit for 15/30/60 days or whatever they feel suits their business and allows them to manage their cashflow, but the customer may not accept. To be told by a bigger customer that the customer will pay in 60/90/120 days take it or leave it is down to the culture of that company and sometimes in the sector they operate in, and technology can’t change that.  

Just because you have the payments system in place that allows you to pay suppliers in 10 days doesn’t mean you’ll do it unless that’s the company’s ethos. Ethos comes from leadership and leadership usually comes from the top, although in the best run firms it can come from anywhere in an empowered workforce. However, ethos often founders on the rock of financial and economic reality. As many applicants to the Fair Payment Code have discovered it can cost a lot of money to improve systems and processes to the point where they merit a Gold Award and Boards and CFOs or Treasurers may not be open to approving that level of spend.   

It is also down to small businesses to embrace the technology available to them and that takes time, understanding, capacity, capability that many are too small to have available. The plethora of information often confuses the issue and the right support can be hard to find. In those situations, many small business owners keep putting off decisions.  

Technology is becoming cheaper, easier and quicker to embrace and use but that’s only part of the answer. You may well get paid quicker once you’ve made the investment but there can be a lot of pain involved in on-boarding to some of the complex systems put in place by bigger customers. We’ve all, as I’ve said many times before in Reflections, got to work together to make it easier to pay and get paid quicker and fairer. We all have a piece to add to the jigsaw.