Late Payment is a scourge: During COVID 19 there is even less excuse

Genesis is calling for the injection of £ hundreds of millions into the economy through a turbocharging, radical and beneficial change to the UK’s B2B payments process.

Statement from the Genesis COVID 19 Working Party Chair Chris Parr
In the Business-to-Business (B2B) world, supplier payments are controlled by those powerful enough to force their creditors to wait. Major cash businesses, such as supermarkets, are operating as banks in disguise. They take payments, or “deposits”, from customers in return for goods that must be paid for immediately. However, many of the original suppliers of those goods are not paid until weeks or months later.

Of course, it’s not just the supermarkets. Many B2B business models are built on the basis that suppliers are not paid for weeks or months after the delivery of goods and services. The key is the time between the date of supply and the date of payment for that supply – the “payment gap”.

The payment gap makes money and costs money
Those with the cash can make it work for them – money makes money. However, those waiting for the cash are expected to finance their operations over the payment gap.

One person’s shoplifting is another’s trading
Go into a supermarket and fill a trolley. Proceed to the checkout and tell the assistant that you’ll pay in 30 -60 days. Then leave. Clearly, this will not work! However, imagine that you are a business that supplies to that same.

Dark reality to turbocharged future
This crazy environment masks a huge, dark reality. Delayed payments cost the UK and global economies hundreds of millions of pounds every year.

If every buyer paid its bills on time, the cash flow effect inside the economy would be stunning with an effect like adding a free turbocharger. There would be no need for anyone to produce or sell any extra goods or services to be able to immediately boost the UK economy with a much-needed injection of liquidity. This would make a direct, bottom-line addition to the nations’ s cashflow simply by the act of paying on time, or early.

Let’s look at the numbers
In the current COVID-19 crisis, late payments seriously threaten the integrity of the supply chain and the viability of SME suppliers. Placing undue strain on the supply chain is a limiter to economic growth.

David Harrison, Founder of Payments Optimisation company, PaySavi, has stated (www.paysavi.com), “There really should be no reason for a supplier to suffer payment delays for goods or services that they have successfully and diligently delivered. Nor should they have to view chasing for late payments as part of normal business. The processes for paying suppliers on terms should be straightforward and effective solutions do exist. They do not have to be complex or confusing”.

Pay.UK has reported that late payment to SMEs, before C-19, had risen to £23.4bn, up £10.4 billion on the £13 billion owed in 2018. Late payments – typically larger companies delaying payment to smaller ones – will get worse through the C-19 period.

According to an analysis by PaySavi of the latest data on the UK Government’s Payment Practices website, 59% of the UK’s largest businesses pay their suppliers more than 30 days after invoices have been submitted. Nearly half report that 25% or more of the invoices they receive are not paid according to the terms agreed (Source: Payment Practice Reports: https://www.gov.uk/check-when-businesses-pay-invoices).

The case for change is compelling – something for nothing
By removing artificial blocks in the payments system, economic benefit will be generated simply because payments flow around the system earlier and faster. Everyone will be better off.

Step One: There should be a mandatory, and ethical obligation for invoices to be settled no later than the agreed date, with that date never being more than 30 days after the date of delivery of the underlying goods or services. This is not saying much more than: the payer should comply with the contract of sale. So, that shouldn’t be too hard, or too controversial.

Step Two: The initial 30-day period should be shortened, dramatically. Why not 5 days? Payment technologies have moved on and the UK has seen innovative solutions delivered by its FinTech businesses. The previous manual processes can be replaced by automation, with all the required checks and balances. Buyers and sellers can enjoy a win-win through prompt payment technologies.

It is possible to ensure that everyone can adjust, quickly to the new world – we are passing through unprecedented times, after all. The unthinkable has happened already. Things that, just a few weeks ago, were impossible to achieve have been achieved. Therefore, changing something simple, such as “time to pay”, should be easy.

Step Three: The new best practices pioneered by the UK will be adopted for international payments, further stimulating the economies of both the UK and its trading partners. Cross-border payment technologies have also evolved and the win-win scenarios for buyers and sellers will be clear and evident, not just through much-improved processes, but also through a recognition that optimising payments stimulates the world economy.

The Genesis Initiative
May 2020