EOW Reflections: How businesses should report their payment performance

Getting people together to talk over an issue is one of the most satisfying things especially when everyone comes along to share and resolve or to listen, learn and act.

That’s the spirit in which Accounts Payable experts, and small and large businesses sat down this week (online sadly) with a long cast of OSBC and Department people to look at how businesses report their payment performance.

To me payment performance, as in how well you pay your suppliers of all sizes, is a great measure and indicator of how well a business is run. We talked about this yesterday at the World Financial Forum. If you pay on time and pay in fair payment terms then everyone knows where they stand, and the smaller businesses along your supply chain can be certain when they’ll have money available to invest, improve and deliver better services or products to you, the customer, with which to keep your own customers happy and returning.

However, when big customers extend their payment terms to 90/120 or longer days to pay and/or pay after the due date, suppliers, would be talent, investors etc may well ask themselves whether you’re a good firm to do business with or even whether you’re offering extended payment terms because you’re in trouble. Ultimately poor payment practices of long and late payments may drive not only the suppliers to the wall, but the investors and talent to work with your competitors.

And so, to the discussion with businesses and Accounts Payable. The guidance says clearly when you are working out the days it’s taken to pay a supplier you count from the receipt of the invoice. In my innocence I thought that was quite clear guidance when I started this job but over the time I’ve realised that there are all sorts of interpretations being given to the word ‘receipt’. Firms that set a lot of store by the importance of their suppliers count from the date the invoice is received and have clear processes. Other firms count from the day the invoice is received by Accounts Payable, and depending on the length of time that invoice spends in the approvals process that means it could be weeks longer than the 30 days a small business is updated by procurement. Experts round the table say that often procurement isn’t fully aware of the processes involved and does tell suppliers they will be paid quickly, in good faith. We had a classic example from a small business of being told before they took a contract that they’d be paid in 30 days, but the 20-point approvals process took weeks, accounts payable paid 30 days end of month, so in total it was 210 days from delivery to payment. Small businesses can’t cope with having to wait that long. My worry though is that that customer may be reporting that they’re paying in 30 days.

We need clarity. We’ve heard from the businesses and the experts. We’re putting an action plan together. We can’t sort this all out ourselves. We need the support of businesses of all sizes. Once we know that all firms are reporting using the same measures etc we can see who is best and worst, and suppliers will be able to choose who to do business with. Even it you can’t pay in 30 days the supplier needs the certainty of knowing exactly when the money will reach them. Cashflow is still king for businesses, and we need to get it flowing as quickly as possible through the system for the good of everyone. And the best bit about the meeting and discussion is that everyone wants to help make that happen.