George Osborne’s UK Budget has come and gone, but is was fairly easy to predict that bank lending and access to finance will be high on the agenda. Working capital is one of the essential elements of a successful business. Balancing funds in and out has always been something of a fine art, but now the squeeze on credit has left some businesses walking a tight-rope.
Britain’s small business minister Mark Prisk is right to raise the issue of late payment as a major business concern. He admits that legislation aimed at forcing large suppliers into prompt payment has largely failed and believes the Government should publicly ‘challenge’ poor payment practice to force companies into improving their behaviour.
We all know that large businesses often delay supplier payments in order to manage their working capital more effectively. However painting big businesses as the bad guys is unfair and assumes they don’t have their own cashflow concerns. Working capital is an issue that affects companies large and small and with the economic situation still delicate, it’s no surprise that most procurement executives are hanging on to available lines of credit for as long as possible.
When you look at both sides of the equation, it’s clear that legislation was never the answer. Quite simply, it forced suppliers and buyers into a position that made them fundamentally uncomfortable. Small businesses were never going to want to damage their most important relationships by pushing through their own terms.
The Government’s recently published Prompt Payment Code offers hope of a middle-ground for SMEs and corporates. By actively encouraging the use of electronic invoicing and automated processing, the Prompt Payment Code appears to offer the beginnings of a solution that will keep buyer and supplier happy.
Automating payments makes the whole process simpler for everyone to manage, eliminating the need to chase funds. Financing high-value items using short-term credit can also help buyers get money to suppliers faster without incurring any additional costs. Everyone’s a winner!
But automated payments aren’t just good for SME-Corporate relationships. Corporations spend millions of pounds buying goods and services from other corporates and, whilst their cash flow positions may not be quite so fragile, the process and credit savings here can be truly astronomical for both parties.
Companies rely on their suppliers and the current focus on strategic sourcing sees these relationships strengthening even further. They don’t really want to see them struggling or going out of business, but strong-arming them isn’t the solution. Making invoice payment more efficient is the key battle here. This not only helps create stronger payments processes with suppliers, but it can really help to strengthen those relationships that are ultimately critical to business success.