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Why It Pays to Pay On Time – Using Data Analytics to Boost Your Business Payment Performance

Tardy business payment practices could soon prove very costly to your company indeed, if a newly introduced Bill becomes law.

For some time, the SME sector has been mounting pressure on government to light a fire under late payers. In the last 12 months, we've seen big companies named and shamed by the Small Business Commissioner for poor supplier payment practices. And this January, a Private Members Bill was introduced to the House of Lords by Labour peer Lord Mendelsohn, aimed at tackling late invoice payments and bolstering the powers of the Commissioner.

Rather than a simple name and shame, Lord Mendelsohn’s bill would legislate a 30-day limit for all invoice payments (at present, longest standard payment terms average just over 70 days) and give the Small Business Commissioner the power to levy large fines on habitual payment offenders.

The SME sector has a fairly large axe to grind here, given that almost half (47%) of agreed terms are in excess of 30 days and a third of all payments to small businesses are late. According to a 2019 report from Quickbooks, the UK SME sector also loses more than 56 million hours a year to late payment chasing.

When you consider that almost a quarter of insolvencies (23%) are caused by late payment issues, it's clear to see not only how crippling the situation is to SMEs but how it also has a negative impact on the UK economy as a whole. Poor payment practices can stifle growth for everybody. It's time, says Lord Mendelsohn, to 'tackle the issue once and for all.'

Count the benefits, not the cost

But, besides future-proofing your business against hefty fines, and helping to prop up the economy (both fairly compelling reasons for change), can any other benefits be gleaned from keeping your payment record clean? Absolutely. Supporting the financial health of your SME suppliers by paying your bills on time, will help to limit risk in your supply chain and will win you points with any potential investors undertaking due diligence. Improving your payment processes can also result in increased efficiencies, a reduction in administration costs and the opportunity to make significant savings by reducing error and accessing  discounts  - though not at the expense of your SME suppliers, of course.

Last year, a study from Barclaycard revealed that businesses can achieve sizeable savings by capitalising on early payment discounts. By applying economic modelling, Barclaycard found that UK corporates save a total of £14.4 billion in early payment discounts each year - equating to an average of more than £75,000 per business. But the modelling also revealed that 'companies not making the most of early payment discounts are leaving an estimated £6.7 billion on the table each year.' It's important to consider whether you have the technology, processes and desire to capture these discounts.

Good payment behaviour also resonates with customers. In an age of ethical consumerism, the companies that are seen to be treating small business suppliers fairly, and placing value in their supplier relationships, will be of greater appeal to the buying public. The CSR value of being a responsible bill payer is increasing all the time.

With companies required to report on their practices, policies and performance relating to the payment of their suppliers, under the Payment Practices & Performance Regulations 2017, accounting behaviour is subject to scrutiny not only by the regulators but by customers and suppliers too. Here, again, it pays to pay on time.

How data analytics can help

Transforming your accounting processes can be a daunting task, though. And before you can implement improvements, you need to know where to place your focus. For many businesses, getting a handle on Accounts Payable (AP) performance is a serious headache.

AP professionals do their best to manage thousands of invoices, across hundreds or even thousands of vendors, with varying invoice periods, limited invoice detail and disparate systems in use. Being able to monitor all of this activity in one place, so it can be audited, analysed and understood is invaluable.

With four in ten businesses currently looking to upgrade their financial and accounting systems  (Barclaycard), the case for insightful data analytics is stronger than ever.

There's no need to roll-out completely new systems, though, to gain improvement intelligence. New analytics technologies sit alongside your existing infrastructure, driving insight that will create value in a range of ways. Presenting your accounting data via interactive reports and dashboards, this technology enables executive teams to make good decisions based on historic and predictive analytics.  

Analysis and visualisation of payment versus contracted payment terms, for instance, allows finance teams to optimise usage of on and off-invoice discounts and improve working capital. At the same time, visibility of invoice volumes, timings, PO data and sign-offs highlights Procure to Pay (P2P) bottlenecks and allows for simplification, and efficiency decisions. Applications are available for invoice-level analysis, which identify and eradicate errors before they happen, keeping cash in the business.

With these technologies and analytics capabilities, it becomes straightforward to discover where significant savings and efficiencies can be made and where opportunities are being lost.

By getting your business payment practices in good shape now, you'll stay one step ahead of the legislators. More importantly, you'll help your business and thousands of SMES across the UK to thrive.

Ian Yates – Director, Barcanet

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