Many companies recognise the importance of paying suppliers on time. They keep their valued suppliers happy and in return get better service and potentially improved prices. However, research indicates that companies on average are paying suppliers consistently late. Companies such as Boots and WH Smith have maximum payment terms of 120 days (source: https://smallbusiness.co.uk/late-payments-small-suppliers-2546234/).
Some suppliers offer an early payment discount, however this incentive still has little effect in helping cashflow for suppliers. Even the Government’s Prompt Payment Code (PPC) appears to have had little effect on bad payers.
Some industries are worse than others. Retailers and Construction companies being cited as notoriously poor. Carrillion, for example, was registered on the PPC inspite of paying on 120 terms. In a recent report the Business, Energy and Industrial Strategy (BEIS) advises to introduce statutory 30 day payment terms and require all medium and large companies to sign the Prompt Payment Code, with added powers for the Small Business Commissioner to fine companies for late payment.
The cause of late payments can usually be traced to policy or practice. Some medium to large companies use extended payment terms as a low cost and flexible source of cash and rely on their suppliers to shoulder the burden.
However, for many companies poor processes and bad practice result in a complex, highly manual and error prone process of approving invoices for payments. For example:
- Purchase orders not being issued in a No PO / No Pay environment
- Manual re-keying of supplier invoices
- Poor matching and reconciliation of invoices to orders
- Lengthy approvals processes using email
- Paper invoices getting ‘lost in the post’
- Supplier invoices being mis-coded to the wrong ledger
As a direct result of these poor practices, companies are missing out on early payment discounts, creating poor relationships with their valued suppliers and risk being put on stop by the supplier – or even forcing the supplier out of business. In a healthy and strong economy, we need willing suppliers to help growth and innovation.
Forward thinking businesses are adding purchase approvals technology to their accounting software. Cloud based software, such as Zahara, streamline the processes of raising purchase requisitions, orders, budgets, approvals, receipting goods and reconciling supplier invoices. Not only does the company benefit from reduced administration, fewer errors and lower costs – it achieves a real time visibility of every transaction across its business, and therefore tighter controls on their purchasing and improved payments to suppliers.
By way of examples, Zahara clients British Airways Holidays have increased the per centage of suppliers paid within 30 days from 69% to 79% and Lush Retail have improved the same metric from 56% to 95% (source: HMRC published payment practice reports and client feedback). Furthermore, their suppliers are better aligned to provide improved service levels and better prices. Zahara makes your suppliers perform better.
So if you’re with a company that needs help to improve its purchasing and get their suppliers paid promptly, take a look at Zahara.
