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Half of businesses admit to paying suppliers late

17/11/2017

Research reveals internal processes and a lack of automation are top causes of late payments to suppliers, above cash flow constraints

 

NOVEMBER 17, 2017: Slow internal processes and a lack of automation are among the biggest challenges for businesses when it comes to paying their suppliers on time, according to new research by Tungsten Network and the Institute of Finance and Management (IOFM).

The Friction Index research found that almost half (47 per cent) of businesses admit that at least one in 10 payments to their suppliers are made after their agreed payment terms – typically 30 to 60 days. Of these, 16 per cent of businesses said that a fifth of their payments are never on time and only five per cent of businesses claim to always pay their suppliers in the time promised. In addition, one in 12 of businesses admit failing to monitor their payment practices altogether.

This research coincides with the new UK law requiring companies to report on their payment policies, practices and performance. This new requirement from the Department for Business, Energy and Industrial Strategy (BEIS) has been introduced to tackle issues around late payment and will require businesses with an April year-end to report as early as November 30, 2017.

The Friction Index found that businesses identified the following issues as the biggest challenges when it comes to paying suppliers on time as:

  1. Slow internal processes (64%)
  2. Lack of automation (39%)
  3. Administrative errors (27%)
  4. Team capacity to manage the volume (20%)
  5. Managing cash flow (16%)

Richard Hurwitz, Tungsten Network’s CEO, said: “Late payments impact economic growth. Chasing payments is a source of frustration for suppliers and buyers alike.

“However, there is a common misconception that these late payments are solely as a result of managing working capital or businesses holding onto their funds for as long as possible. Our research shows that when it comes to late payments, clunky internal processes and slow paper-based systems are the predominant causes, leading to friction in the supply chain.

“Businesses ultimately need to get paid in order to invest in more work. Late payment impacts working capital and economic production. Arranging invoice payments can be a complex task, particularly if it’s cross-border and involves ensuring compliance with local tax laws. Businesses should feel supported, not pressured, in ensuring that their suppliers can be paid on time.

“Identifying instances of friction within the procure-to-pay work stream is the first step towards removing them and in many cases, technology can do away with these cumbersome and menial tasks taking up precious time and instead boost productivity and efficiency.”

As the volume of global transactions continues to rise, the proportion of e-invoicing has also grown, with businesses feeling the benefit of a reduced influx of paper invoices. According to latest figures from the European E-invoicing Service Providers Association (EESPA), over 1.6 billion e-invoices were processed in 2016, a 23 per cent increase on 2015 (1.3 billion).

“Suppliers rely on timely customer payments to pay staff, manufacture, market, sell and ship goods, and invest in the business.  Late payments negatively impact working capital, economic production, and partner relationships,” said IOFM Executive Director Brian Cuthbert.  “The Friction Index reveals that the problems caused by late payments can be eliminated through automation. Eliminating friction in the procure-to-pay cycle enables buyers to pay their suppliers on-time to strengthen relationships, gain leverage in contract negotiations, and ensure the stability of their supply chain.” 

Tungsten Network and IOFM developed The Friction Index for businesses to assess and identify the causes or friction within their processes. Finance teams at large companies with more than 1,000 employees, and smaller firms with less than 100 employees from nearly 500 businesses all over the world took part in the study. They were asked about what supply chain friction looks like for them and the impact it has on their business.

By analysing the current state of potential causes of friction and the priority level of removing friction from procure-to-pay processes, Tungsten Network and IOFM created a friction score which it will be able to review year-on-year.

To view the full study visit: http://www.tungsten-network.com/procure-to-pay-friction/

To find out your business’ causes of friction, visit http://frictionfinder.com/.

ENDS

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About the Friction Index

The Friction Index is an ongoing survey-based tracker of supply chain friction. It shines a light on all the inefficiencies that cause frustration and conflict in the P2P process.

Research was conducted in April - May 2016 on 422 senior financial decision makers and process owners in large, small and medium sized businesses.

 

About Tungsten Network

Our vision is to be the world's most trusted business transaction network by using data intelligently to strengthen the global supply chain.

Tungsten Network is a secure e-invoicing, purchase order services and workflow platform that brings businesses and their suppliers closer together with unique technology that revolutionises invoice processing, maximises efficiency and improves cash flow. Delivering trusted connections and streamlined transactions, the network also provides users with real-time spend analysis and offers suppliers access to invoice financing and supply chain finance through Tungsten Network Finance.

Tungsten Network processes invoices for 76 percent of the FTSE 100 and 67 percent of the Fortune 500. It enables suppliers to submit tax compliant e-invoices in 48 countries, and last year processed transactions worth over £155bn for organisations such as Alliance Data, Cargill, Deutsche Lufthansa, General Motors, GlaxoSmithKline, Mondelēz International, Henkel, IBM, Kellogg's and the US Federal Government.

Trusted, passionate and proven, Tungsten is making the digitisation of global commerce between buyers and suppliers faster, easier and smarter.

 

About IOFM

The Institute of Finance and Management (IOFM) is the leading organisation providing training, education, and certification programs specifically for professionals in Accounts Payable, Procure-to-Pay, Accounts Receivable, and Order-to-Cash, as well as key tax and compliance resources for Global and Shared Services professionals, Controllers and their F&A teams.

IOFM supports the education and advancement of financial operations professionals worldwide through its certification programs – with nearly 20,000 certified, as well as its three industry-leading annual conferences, and local chapters. With a demonstrated understanding of the issues and needs of the profession, IOFM is the trusted source of information in the rapidly evolving field of financial operations. Learn more at www.iofm.com.

IOFM has certified nearly 20,000 financial operations professionals worldwide through its certification programs. These programs include Accredited Payables Specialist or Manager (U.S. and Canadian specific versions available), Accredited Receivables Specialist or Manager. The globally recognized AP & AR certifications are available in English, Simplified Chinese, and Spanish.

IOFM’s membership networks, the AP & P2P Network (www.app2p.com) and AR & O2C Network (www.aro2c.com), feature industry research and best practices, metrics and benchmarking data, policies, case studies, tools, templates, and critical compliance and corporate governance resources. The Institute also produces on-demand e-learning resources including video trainings and web-based seminars.

IOFM hosts industry-leading conferences designed to facilitate continuing education and peer networking. These events include the Accounts Payable and Procure-to-Pay Conference and Expo Spring and Fall.

With a universe of over 100,000 financial operations professionals, growing certification and membership programs, and a keen understanding of the issues and content needs critical to the profession, IOFM is the trusted source of information in the rapidly evolving field of financial operations.

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