Half of Businesses Admit to Paying Suppliers Late
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%) 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% of businesses said that a fifth of their payments are never on time and only five% 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:
- Slow internal processes (64%);
- Lack of automation (39%);
- Administrative errors (27%);
- Team capacity to manage the volume (20%);
- 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% 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.”
(Source: Tungsten Network)