How digital technologies could eradicate late payments once and for all

At this time of year, many people are keeping a close eye on their bank accounts and counting down the days until payday. This scenario is also played out across thousands of businesses, but with the added pressure and responsibility of keeping cash flow healthy for the sake of both their employees and supply chain.

At its worst, late payment can cause companies to fail – take Carillion for example, which imploded at the beginning of 2018. Carillion had payment terms of 120 days and, by the end, owed around £1bn to 30,000 of its suppliers. In reality, research by Tungsten Network shows that this could become more commonplace, with one in four firms at risk of insolvency due to late payment practices.

While this makes sobering reading, there are at least some signs of improvement as innovation in technology gathers pace. As a network that sits at the heart of billions of transactions worldwide, it’s interesting to see the developing trends in the supply chain and how long businesses are actually taking to pay each other.

Analysis of millions of transactions involving 94,937 businesses across multiple countries shows that, while there are variances across the world, some countries are improving their payment culture.

When it comes to payment times, the UK comes second in a global league table and just behind the US, with the average time to pay suppliers improving by 14% since 2016, taking on average 42 days in 2018 compared to 49 days previously. This compares favourably to Europe where payments take 52 days.

Lobbying for change

It is notable that payment times are coming down as businesses start to automate the process. Going digital is enabling firms to pay more promptly and efficiently, injecting health into global supply chains and importantly, politicians are at last realising this.

Since April 2017, the UK government has required large companies and limited liability partnerships to declare their payment practices and performance, including the average time taken to pay supplier invoices.

The hope is that businesses will feel the pressure to improve their payment times, but this is currently having a limited effect. For example, only 9% of large UK businesses have signed up to a recognised payment code such as the government-backed Prompt Payment Code, showing there is still a long way to go.

In October, Small Business Minister Kelly Tolhurst announced that she wanted to explore the effectiveness of innovative technologies, such as e-invoicing and other accounting software, to help small firms manage their payments processes.

Similarly, the US Faster Payment Council is also exploring how technology can facilitate quicker payments, both in the consumer and business world.

This positive and modern approach could really make a difference to what is now a global issue.

Technology is driving payments forward

When businesses digitise their accounts departments, systems speed up the payment process by removing friction from the supply chain. E-invoicing brings greater transparency to the supply chain and strengthens relationships and collaboration throughout.

Suppliers can check the invoice status online and don’t have to follow up or chase companies for an update on their payments, something that they can find both awkward and a hindrance to healthy business relationships.

As a result, e-invoicing usually reduces calls and emails by 60%, increasing productivity, cutting costs and enabling staff to focus on the real work of growing the business.

In addition to quickening up payment to suppliers, e-invoicing also reduces fraud, error and duplication, bringing down the cost of invoicing by  more than 50%.

In so many ways, bringing this digital technology into the finance function is a ‘no-brainer’ and it is encouraging that the UK government is at last seeing this. If businesses adopt e-invoicing universally, we could see a tangible and immediate difference to the country’s late payment culture, something that hasn’t been achieved through other measures.

Only when the business community takes responsibility for its own payment terms, will progress be made. Presenting the multiple benefits of going digital could be a real catalyst for change – not only does e-invoicing improve payment times, it also modernises the entire process, improving efficiency, accuracy and saving businesses money.

Most importantly, it can enhance the overall health and performance of the supply chain and encourages responsible and transparent business practices.

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