The negative Social Impact of the late payment culture.
Dr Chris Arnold
Thought Architect. Social Impact Strategist. Public Speaker. Ethical Marketing. Branding. Creativity. Innovation. Ex director Saatchi & Saatchi.
You can tick as many boxes as you like around environmental issues, D,E&I, have an anti-slavery policy, give to a charity and claim you care about the planet and people, but if your finance department is behaving unethically, you are not a business that can hold it’s head up high and claim to be ethical and good.
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Big companies now report on their ESGs – Environmental, Social (impact upon people/community/society) and Governance (how you run your company).
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But while CSR and HR and trying to do good, finance is lagging well behind, especially around late payments. The weak link in an ethical chain.
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Late payments can be damaging for small businesses and the self-employed. Plus, it has a ripple effect down – when one business is forced into a cash flow crisis, it can affect up to 6 other businesses. And when a business fails, it can cause others to fail too.
According to the Federation of Small Businesses (FSB), in one year alone 50,000 small businesses went broke as a result of late payers.? Many relate to bigger companies.
?FACT SHEET:
? There are over 5.5 million small businesses in the UK [2022 survey].
? Over 50% of companies are impacted by late payments.
? 25% of small businesses say late payment is getting worse.
? Late payment forces companies to take out expensive overdrafts and credit.
? 37% of small business applications for credit were used to help manage cash flow
? Around 50,000 small businesses went broke in one year as a result cash flow issues.
? 62% of the public felt that suppliers should be paid within a week.
? 55% want to see tougher rules to stop late payments.
? Prompt payment could boost the UK economy by ￡2.5 billion annually.
? Late payment has a negative social impact, for little financial gain to big companies.
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The Prompt Payment Code (PCC) requires that 95% of invoices should be paid within 30 days. Sadly, despite many big businesses signing up to the PPC, most ignore it with no consequences.
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The ‘Late and the Slow Payment Watchlist 2023 Report’ published by Good Business Pays found that:
? more than 70 companies have a poor payment practice, with an average payment time of 83 days.
? 2/3rds of the 75 worst performing companies listed reported over 2/5th of their invoices being paid later than agreed terms.
? An average of 60% of invoices were paid later than 60 days.
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A consumer attitudes poll conducted by the FSB, found that over 62% of the public felt that suppliers should be paid within a week of invoice, so as part of a company’s Social Impact policy prompt payment adds value. By contrast, being known as a late payer damages a brand’s reputation and consumers do not want to buy from unethical brands.
Research by the Office of the Small Business Commissioner found that if small businesses were paid on time, this could boost the economy by an estimated ￡2.5 billion annually. So the true cost of late payment practice is having a negative impact upon both people, communities and society as well upon our economy.
The uncertainty caused by unpredictable payment times can make it more difficult for small businesses to invest and grow. Financial concern is also the number one factor that creates stress in business owners and can results in both mental health and physical health issues.
Sadly, it has become an acceptable culture for big companies to bully smaller businesses and pay late, yet Government guidelines requires companies to pay within 30 days.? But with no enforcement, FDs push it to 60, 90 even 120. I know of one case where it took a year.
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To quote from the Small Business Commission:
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“If payment terms aren’t agreed in advance, by the supplier and the customer, payment must be made within 30 days from when the invoice is received and accepted.”
It adds that payment terms must be ‘mutually agreeable’, not a big company imposing their own terms on a smaller company.
Shockingly, the really unethical practice of post-project negotiation – knocking the fixed price down after the job is done – is spreading. Many think it should be criminalised.
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While financial and procurement departments have an agenda to get a good price, there’s a fine line between a fair deal and exploitation and even abuse. Just look at the case of supermarkets vs farmers, where supermarkets were forcing farmers to sell milk for less than it cost to deliver. Fairtrade doesn’t just apply to suppliers from abroad.
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The conclusion is simple. If you are reporting against the S in your ESGs and measuring your Social Impact you cannot ignore payment terms. Like it not, your finance team needs to get on board and abide by the many guidelines and requirements laid down to be fair in negotiating fees/prices and paying promptly.
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There really is little financial gain to pay late but lots of negative ones – suppliers will charge more next time, some will blacklist you, they are less co-operative, and it sours relationships.
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It has a massive negative economic and social impact, just look at the figures above! But a simple policy change can transform a company from bad to good.
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And it’s proven, that businesses that do good do good business.
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Dr Chris Arnold is a specialist in Social Impact Strategy.
Contact: via Linkedin or email: [email protected] t: 07778 056686?
Check out our MasterClass ideal for all levers of employees, from trainees to middle management to C-Suite and even the the CEO.
SUPERCHARGE the S in your ESGs – Everything you need to know about Social Impact from strategy to measurement, ESGs to SDGs, in a 60 minute. (Fees apply) https://mysocialimpact.org/masterclass-all-you-need-to-know-about-social-impact-in-60-minutes
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LINKS:
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MySocialImpact.org defines Social Purpose, Creates cohesive Social Impact Strategies, and measures Social Impact.
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FSB – Late Payments Report and link to download the Time is Money Report
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LONDON ASSEMBLY
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OFFICE OF THE SMALL BUSINESS COMMISSIONER
Strategic Growth and Action for Responsible Businesses | ACCA SME Global Forum | Founder of Profit Impact | B Corp? | B Leader
8 个月I've seen this issue throughout my finance career. It needs addressing for the benefit of everyone involved. It's a case of going back to basics getting payment processes and staff training in order then getting payments made in a fair timeline. It's too stressful (and harmful) for small businesses and their communities to bear the brunt of this. I'd put bets on this being the biggest single dissatisfier for smaller suppliers today.