Do you work for a living? If you answered yes to that question, then typically at the end of the month, the money comes in – pay in exchange for your labours for the past few weeks. And all too often your finances are planned so that within the next day or two, most of your major monthly bills are settled. So how would it work for you if your pay were a few days late? How about a few weeks, or even months? Do you think your suppliers, the phone company, the mortgage company etc would be OK just to wait for your pay to come along before you settled with them each month? I doubt it. While we’re on the subject, how about the relationship between you and your employer? How might that be affected if the money you are due to receive in exchange for your labours just didn’t show up? I’m guessing that would suck. Badly.
Yet this kind of thing goes on between companies all the time, and often late payment just seems to be accepted as ‘the norm’. Chasing late payments is inefficient, it wastes time on all sides. It’s bad for your (the late payer’s) reputation, and in particular when it’s a bigger company holding out on a smaller company, it’s just plain wrong. By way of an example, I wonder how Sainsbury’s would feel if you the shopper decided to wait almost three months before paying for your goods? Sounds remarkably like shoplifting to me, but in this Daily Telegraph article you can read about how Sainsbury’s has changed its payment terms so that suppliers now have to wait 75 days before their invoices are settled.
Typically at What Goes Around we pay our suppliers immediately on receipt of the invoice although recently we forgot to pay one of our suppliers and they chased us up a month later. I was embarrassed about the situation, albeit this was a very rare occurrence – it is not the way we want to do business. As an employee you expect to get paid on time, and I think it should be the same for a company too.
Many companies talk a lot about ‘Corporate Social Responsibility’ (CSR). Many see it as a competitive differentiator, as a way to engage employees, and as a way to show off their sustainability credentials. Often, a key part of the CSR plan will include some kind of supply chain audit, so that as far as possible, the company can be assured that its suppliers are reputable. Sainsbury’s say that by 2020 ‘our suppliers will also be leaders in meeting or exceeding our social and environmental standards’. I’m using Sainsbury as an example, but this could apply equally well to a large number of other household brands too, and as far as I know, these companies don’t currently include their own payment terms in such a policy. I think they should. I think swift, prompt payment of suppliers should be an integral part of every CSR plan.
The UK Government has its own ‘red tape‘ challenge which is supposed to remove unnecessary bureaucracy in order to make lives easier, and they’ve also recently set up a taskforce to help identify how EU regulation holds back growth. I’d suggest our government could look a lot closer to home in the first instance and apply pressure in order to improve payment terms. If money makes the world go round, then get it moving faster please.
It would be easy at this point to get into more mud slinging and name calling around bad payers, and if you want to, you’re welcome. What I’d really like to hear about though, is any positive experiences you are willing to share. I’ll kick off with three brands who have demonstrated the power of prompt payment to us. hibu (formerly know as Yell), National Employment Savings Trust, and Rio Tinto. If you have any other examples of prompt payment, please share them.
I’ve seen this situation worsen in construction in the past three or four years. Huge companies are putting smaller ones out of business with payment terms as long as 120 days- it’s nothing short of disgusting.
Ouch – 120 days, that is awful!
As part of my research (aka digging around) for this post, I spotted that BT has standard payment terms of 60 days. In addition, they have an arrangement with Lloyds TSB whereby you can get paid quicker – in exchange for a fee. What a swizz – just pay up quicker!
I am trying not to rant.
Local Authorities pay very quickly as do small charities.
I pay on return, so you can give me a mention as a prompt payer.
Doug, the wheeze that you are outlining with lloyds is called “reverse factoring” and is the latest finance idea cooked up by the banks. It is something that my current employer is investigating (being linked to the construction industry) as it is also being implemented by companies like Carillion to it’s suppliers.
Having stretched our suppliers as far as they can go, we will allow them to get the money from the bank earlier than we would normally pay, but at a discount v our normal payment (effectively an interest charge for the difference from the bank)
Of course next year I would expect our suppliers to factor this charge into their pricing and increase their margin accordingly……….
I don’t agree with the principle, it just seems another way for banks to make money without any risk, when we need them to actually invest in business, rather than suck it dry!
Thanks for your insight Tony, I think ‘wheeze’ is putting it politely, feels more like a choke to me.