Payments

There’s a school of thought that runs along the lines of – when the economy picks up, some of the alternative funding methods that have flowered in the wake of the recession, will cease to be the flavour of the month that they seem to be right now. The theory being that if interest rates increase, the benefits to be gained from greasing the wheel of the supply chain by paying early at a discount, will be outweighed by the benefits of keeping the money in the bank. Undoubtedly that will be the case for some organisations, just as now there are many who are yet to be convinced by the merits of being able to use supply chain finance or dynamic discounting even in today’s market. Sometimes in business old habits die hard.

Whether late payments happen by accident or design, they may soon be attracting penalties for businesses.  So how should organisations get control of their accounts payable and build better relationships with suppliers?

No matter what payment terms are agreed between businesses, it’s increasingly common for the actual payment to be late.  This point was underlined by a recent UK survey by BACS (Bankers' Automated Clearing Services).  It found that the average UK small company is now owed £39,000 at any one time, and that businesses are owed on average 10% more than last year.  Critically, those hit by late payment are waiting on average 28 days above their payment terms to have invoices settled.

How purchase-to-pay automation can give closer control of payment cycles – and over 30%  annual return on capital.

If you were offered a way to get a 30+% annual return on your capital, and more efficient financial processes, would you be interested? I’m guessing yes, especially now as businesses are tempted to hold onto their cash for as long as possible. While UK firms have reduced the time it takes to settle their bills, according to Experian’s Late Payments Index, they are still paying 21 days after agreed terms. Everyone’s doing it, but it isn’t good for supplier relationships. Nor does it make the best financial sense – so why do firms persist with it?

If there’s one thing which finance departments agree on at the moment – it’s a need for greater corporate liquidity. The ways in which individual organisations attempt to achieve this is as varied as it is resourceful.  As the banks’ squeeze on lending continues, and yields on business accounts remain dismally low, organisations need to be creative when exploring avenues for cash creation.