Supplier Payments fit for performance?

Supplier Payments fit for performance?

New government regulations have been introduced to force companies to publicly report both their supplier payment practices AND their actual supplier payment performance.

There is no doubt that late payment is a key issue for businesses large and small.

It can have a massively detrimental impact on cash flow, strangling the growth prospects of otherwise good businesses and even compromising their solvency. Led by the FSB, the small business community has been very successful in getting the late payment issue onto the political agendas of the major UK political parties.

The consequence of this new regulation is as predictable as night following day. Both politicians and the media will seize the opportunity it will bring to demonstrate their small business credentials through a public flogging of some convenient corporate baddies and I guess that no Finance Director will want to see their CEO having to front a parliamentary committee over supplier payments!

What is the New Regulation?
Under this new ruling, relevant organisations will be required to report on a half-yearly basis on both their payment practices (i.e. what their contractual payment terms are) as well as their payment performance. The key metrics are highlighted below:

  • Average actual days to pay suppliers.
  • Details of payments made within 30 days and 60 days, as well as any payments which took longer than 60 days.
  • The percentage of payments made once the agreed payment terms had passed.

When does it take effect?
It depends on your business year. For those with an April 5th Year end, it has already started and your first report (on the 6 months to Oct 2017 is due in Nov 2017. For those who have a Dec Year end, however, your first reports will be due in July 2018.

Will this new regulation effect your business?
Companies and Limited Liability Partnerships who match or exceed at least two of the below criteria will be required to report:

  • £36 million annual turnover.
  • £18 million balance sheet total.
  • 250 employees.

What if I don’t comply?
Participation in this new regulation is not an option and any company that is obliged to report must do so with-in 30 days. Failure to comply constitutes a criminal offence by both the company and each director punishable by a fine, not to mention the brand and reputational damage.

Can Supply Chain Finance help businesses achieve their targets?
A well-designed supply chain finance programme can do a lot to help businesses lift their payment performance. However, there is bad news for some large UK corporate companies, as simply offering suppliers the chance to receive early payment under an Supply Chain Finance programme will not count as paying them “on time”. It is the date that the buyer repays the supply chain finance provider that counts if the supplier is paying the fees.

At Global Asset Finance Limited, we have a number of ideas about how you could use a well designed supply chain finance programme to improve your supplier payment relationships without strangling your own Cashflow.

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Categories: Invoice Finance Services