Supply chain · 12 August 2015

Clamping down on late payments and supply chain bullies

 

Large businesses can often take advantage of smaller firms through late payments and supply chain bullying
Large businesses can often take advantage of smaller firms through late payments and supply chain bullying
Many small suppliers suffer through latepayments. Large businesses can take advantage of their size, delaying payments to maximise cash flow, essentially benefiting from free lines of credit. it’s a business practice that’s damaging to suppliers who, stretched thin, can struggle to meet their own payment deadlines.

The government recognises this and has delivered a message. Paying late is not okay. In March, the then business minister Matthew Hancock announced that come April 2016, the UK government will require large businesses to report on their payment practices.

It will include measures of payment terms, average time taken to pay, proportion of invoices paid beyond agreed terms and within specified time periods and late payment interest owing/paid.

This isnt the first attempt to instil a culture of prompt and ethical payment. The Prompt Payment Code already encourages businesses to voluntarily submit to its practices, including 30-day payment terms (with an absolute maximum of 60 days). A compliance board monitors behaviours and suppliers can challenge businesses signed up to the code. Any found guilty of violations are removed from the group.

Supply chain “bullying” has caught media attention of late. As well as late payments, undesirable supply chain behaviour includes “pay-to-stay” where suppliers have to pay a fee or “investment” to guarantee a continuing business relationship.

Losing game

it’s all a losing game. Exploiting the supply chain will cause it to collapse. The relationships within it are mutually dependent. Supplier exploitation for short-term advantage is unsustainable and doesnt nurture growth.

Capital costs for small suppliers can be significant, particularly in emerging regions. If late payments mean they can’t pay their bills they can’t grow. That’s to the detriment of buyers it impacts the quality of goods, reliability, and deliverability.

The good news is that many prominent companies already understand the importance of constructive and collaborative supplier relationships. For their actions to match their intent they need the systems in place to ensure they can make prompt and fair payment.

Technology


 
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ABOUT THE EXPERT

Kurt Cavano is the vice chairman and chief strategy officer of GT Nexus, a cloud based supply chain platform provider. It helps companies to manage their logistics and trade processes. Kurt is responsible for maintaining the company's track record of innovation and market success, and for guiding key customer, industry and partner relationships.

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