EOW Reflections: Show me the Benefits

It’s been a wonderful week. I’ve been to Cardiff and Glasgow. Both were bathed in sunshine and we had hugely productive discussions with business people and accountants as well as some business organisations, advisers and policy makers. The topic? The new Fair Payment Code (FPC) and its role in improving payment practices. The best bits came from the business owners who have had Awards from the Code.

The question was asked: why did you want an award from the FPC when it requires a lot of work and is voluntary? Hearing Awardees articulate the benefits of having a Gold, Silver or Bronze Award was very rewarding.

Many of the firms that have been given Awards were doing the right thing already. The work involved in getting an Award was in those cases minimal. As one Awardee said she’s always paid her suppliers in a few days. She’s made sure she has reserves in the pot to pay out to her suppliers regardless of whether she’s been paid herself by her customers. It’s been a matter for her of being a good payer to keep her own good suppliers loyal. She needs them to make good business decisions based on knowing when they’ll get paid. Her business benefits from that too,

This point was challenged. An accountant suggested that she was costing her business money by paying out to suppliers before she got the money in from her customers. She pushed back saying that if you contract with a supplier you have to pay them even if you don’t ultimately get paid at all. Waiting until you get paid, should that take 60 days for example, before paying your supplier could mean your supplier has to borrow (if that’s possible) or to run up debts on overdraft or credit card while they wait at least 61 days to get paid. At best they will pass those additional costs on to you in increased prices next time. At worst they could be pushed out of business. If you think you can’t afford to pay them quickly and fairly then you haven’t experienced the disruption in terms of time and cost when a supplier goes bust and you have to find a new one you can trust.

Another good point made is that if you think you can’t afford to pay a supplier, then you shouldn’t contract them to supply you with goods or services. If you think you can’t afford to pay them quickly and fairly then you haven’t experienced the disruption in terms of time and cost when a supplier goes bust and you have to find a new one you can trust.

These are all points we’ve been making for years but it’s great when you hear the business owners make the same points from personal experience.

Another business owner pointed to the issue of reputation. If you have a reputation in your sector for being a good payer suppliers want to work for you. That means your business needs may be prioritised over those of other firms in the same sector who pay less well.

The point was made by a business adviser that small suppliers should do their due diligence around how good a payer a prospective customer is before agreeing to supply them. You can do that through credit reference companies or asking for references.

Someone suggested you can set your own payment terms before taking on a piece of work. I know that’s easier said than done. When you get the offer of what could be a game changing piece of work the temptation is not to ask too many questions or put too many conditions on it in case the customer ups sticks and finds a more compliant supplier. Do you really want a customer who won’t pay quickly, makes you wait 120 days and then pays later than the agreed date, leaving you to chase payment? You’re using up time when you could be finding new customers. How do you pay your own suppliers and bills if you’re waiting 120 days to be paid? It isn’t always possible for smaller firms to borrow to tide them over gaps of that length. Don’t take on work if the payment terms mean you could go down the pan while waiting.

Perhaps there’s wasn’t a lot new in our discussions, but it was brilliant to hear other people make the important points. We really need more customers and suppliers, big and small, to understand each other better and we can start working out the solutions rather than constantly discussing the problems. That’s proved a bit more difficult so far. I do hope the FPC will help shift the dial.