EOW Reflections: Culture shift

Tech has undoubtedly improved payment times. On average small firms were getting paid in around 82 days 12 years ago according to the Smart Data Foundry which has been working with Sage to chart payment practices. Now the average is around 32 days. Sage’s Q2 2024 Small Business Tracker out this week shows payments between small firms and their small suppliers even shorter at 15.6 days on average to pay an invoice in Q2 2024, an 8.3-day improvement from last quarter. Averages hide some abominable behaviour so when you’re constantly hearing the horror stories it can be hard to accept there have been such significant improvements.

Most of that improvement, despite my desire to take the credit for the Office of the Small Business Commissioner, must be down to technical adoption.

However, tech can only achieve so much. Improvement is still down to will and culture.

You may have noticed that ISG, the 6th biggest construction company in the UK went into administration last week. We don’t know yet how far the ripples will go. However on Tuesday I read that another big construction firm was looking at how to support their subcontractors which were also working for ISG. Obviously, it’s become clear that it they want to avoid losing good subcontractors they need to support them. One subbie is quoted as saying that the support could see payments speeded up. The best support is often to speed up payments, but I rather uncharitably wondered, if you have the technology to pay quicker, why aren’t you doing that already.

Then again, technology it seems doesn’t always speed thing up. Yesterday I had a message from a business acquaintance of many decades:

‘My 33-year-old firm carries on, but getting paid continues to be a real problem. Our (large) customers all pay us via disingenuously complicated payment platforms that waste a lot of our time and delays payment. Every platform is different, there is no one to communicate with when you don’t understand what you are meant to do. Maddening. And I bet the platforms completely disguise the late payments.’

We hear similar sentiments all the time.

E-invoicing is on the Government’s agenda. There’s to be a consultation on mandating e-invoicing. We’re behind the curve in the UK. Our small businesses in some instances can’t export into markets where e-invoicing has been mandated or where it’s what the firms they wish to trade with use. We need to get with the programme and as I said last week there will be many benefits. But how? Small businesses are worried about the costs and time, and that their customers all use different systems. Several big firms have told me they use e-invoicing, have had trouble getting their small suppliers to onboard to the platforms, and that costs have come down and the onboarding is much less complicated than it used to be. If you want your small suppliers to use your technology, you need to work together to embrace and embed the technology rather than simply saying you must sign up. Disingenuously complicated payment platforms that waste time and delay payments won’t cut it. Suppliers need someone to talk to when they don’t understand what they are meant to do. A small supplier may be supplying many customers and dealing with several different platforms. You are dealing with only one.

Despite all the technological advances though, there are still times when the only answer is to pay quicker. All the tech in the world can’t stop a bigger customer refusing to negotiate better payment terms in the contract than 90 or 120 days, and the smaller supplier accepting for fear of losing the work. That’s not a late payment. That’s unfair payment terms. And to those who argue that suppliers can find alternative forms of finance to manage their cashflow while they wait: that’s often not the case. We are tackling ‘late’ as in overdue invoices as the stats show. It’s the culture that says long extended payment terms in contracts are acceptable that needs to change. Only will, determination, ethical behaviour and a better understanding all round of the needs of smaller suppliers and the value of partnership working will shift that culture.