Payment practices are improving – but can more be done?
As a platform sitting at the heart of billions of transactions, we get a bird’s eye view of trends in the supply chain. We are able to see how long businesses take to pay each other, where there are variances across the world and whether the payment culture is improving or deteriorating. This global insight means we are able to provide up-to-date and in-depth commentary on the issue.
Late payment culture improving
It is therefore heartening that our latest analysis of more than 19 million transactions involving 94,937 businesses reveals some significant improvements across the globe. When it comes to payment times, the UK comes second in a global league table, just behind the USA. The average time to pay suppliers across UK has improved by 14 per cent since 2016, with payments taking on average 42 days in 2018 compared to 49 days in 2016. This compares favourably to Europe where payments take 52 days – ten days longer than the UK.
In terms of improvement, Mexico tops the list of the most improved countries, with its suppliers waiting on average 51 days to be paid, 35 per cent quicker than in 2016. The data also shows an improvement for China, where on average it takes 57 days for suppliers to be paid, a 32 per cent decrease.
In an attempt to combat late payment and ‘name and shame’ the worst offenders, the UK Government now requires large companies and limited liability partnerships to publicly report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices. This has been in place for the last year but sadly, is not yet having the desired effect. Our analysis of the government data shows that larger businesses are still paying three in ten invoices beyond agreed terms. Furthermore, only nine per cent of large UK businesses have signed up to a recognised payment code such as the government-backed Prompt Payment Code, showing there is still a long way to go.
Late payments to businesses have long been a high-profile issue, especially in the UK. It’s something that, according to our own research back in 2015, is putting one in four firms at risk of insolvency. It is therefore vital that our politicians and business community make combating late payment a top priority.
To this end, it will be interesting to see how the British government’s latest ideas affect the UK’s payment culture. Earlier this month, Small Business Minister Kelly Tolhurst announced that she wanted to explore the effectiveness of large businesses appointing a board member who would be responsible for timely payment of invoices. She also wants to promote innovative technologies, such as e-invoicing and other accounting software, to help small firms manage their payments processes, and empower trade bodies to highlight the best and worst practices in payment behaviour.
We are delighted that digital technology is at last getting the attention it deserves as it is proven to speed up the payment process and remove friction from the supply chain. The Small Business Minister wants to identify the most effective ways possible to tackle this issue once and for all and we are certain that she will come to see that digitising the back office is the most straightforward solution available. It ensures small businesses are on a level playing field with their larger counterparts and adds transparency to the supply chain and payment process. It’s not just the UK that is looking at this – the US Faster Payment Council is also exploring how technology can facilitate quicker payments, both in the consumer and business world.
A multitude of benefits
In addition to quickening up payment to suppliers, digitising the back office brings all sorts of other benefits – the payment process becomes more streamlined, efficient and paper-free and fraud, error and duplication are easier to detect. In our experience, going digital reduces the cost of handling invoices by more than 50 per cent and it also brings buyers and suppliers closer together. Suppliers can check invoice status online and therefore don’t have to follow up and chase for payment. E-invoicing usually reduces calls and emails by 60 per cent, increasing productivity, cutting costs and enabling staff to focus on the real work of growing the business.
It’s encouraging to see, from our data, payment practices moving in the right direction but there is still work to do. Digitising the back office is proven to help businesses reduce late payment and enhances the overall health and performance of the supply chain. What’s more, it brings payment processes into the 21st century and encourages responsible and transparent business practices.