The government has finally made an attack on the late payment culture¹ within big business. Now I can hear you think “the worst culprit is the government itself” and this is in part true. But over the past three years great strides have been made by local government, with around 90% of undisputed invoices being paid on time, sometimes even paid early! Unfortunately, central Government still fails to meet its targets due to complexities down its supply chain, to contractors and sub-contractors and so on. With the Royal Assent of the Small Business, Enterprise & Employment Bill or SBEE Bill in March things are set to change.
Alongside the provision in the Bill for Government to pay invoices within 30 days, is the need for primary contractors to also pay within 30 days. Likewise, this ripples down the supply chain, unlocking capital at every stage. But there is a catch; the invoice will be paid no later than a period of 30 days from the date on which the purchaser has determined that the invoice is valid and undisputed. So getting paid is totally in the hands of the supplier because the key words here are “valid“ and “undisputed”. You need to get the invoice in quickly, ensure it has the right content and remove all risk of dispute. And the best way to do this is electronically via e-Invoicing.
The challenge will come from how the primary contractors respond to this. The right solution is to adopt open e-Invoicing channels, so that sub-contractors can send invoices in electronically without risk. But that’s covered in my other Blog. So, the real opportunity is to link these new payment targets with smarter payment methods. For example, if the prime contractor could process validate and approve an invoice within 4 days, they could offer:
- dynamic discounts to suppliers for early payment reducing the overall contract cost
- or pay the smaller supplier via virtual credit cards to extend day payable and reduce internal complexities
Interestingly, the ripple of cash down the supply chain makes other finance initiatives such as the Bank Payment Obligation2 more valuable. It should also make invoice financing more attractive based on assured payment. If only the Government terms could become a payment guarantee, now that would be exciting!
¹ see Infographic: The culture of late payment
² Bank Payment Obligation is a new contractual term against which the supplier can get bank finance based on a guarantee of payment by the buyer subject to the terms being met. Click here for more information.