Practicing prompt payment

A new initiative to promote the benefits of prompt payment has been launched by the Institute of Credit Management (ICM). This coincides with the first official feedback on the success of the government’s new Prompt Payment Code (PPC) and the success of its free business ‘Health Checks’.
 
To date, hundreds of businesses, government departments and local authorities have signed up to the code, and a further 35,000 enterprises have taken advantage of the free health checks, but there is still more to be done to convince businesses as to the benefits of paying suppliers on time.

Seeing the benefits
At a time when money is tight and cash flow critical, it may sound counter-intuitive to some to be encouraging buyers within local government to part with their money more quickly in order to pay suppliers. The advantages, however, go far deeper than simply being seen to treat your customers more fairly. There can be real financial benefits.
 
In the same way that every supplier wants to be the ‘preferred’ party, so too do buyers want to be first on their suppliers’ list. Prompt payment acts towards establishing the very best customer/supplier relationships, which in turn enables customers to negotiate better deals and avoid such issues as late payment interest charges.
 
Furthermore, when perception is everything, it delivers a signal to the market of confidence and sound financial wellbeing that in turn promotes further mutual business opportunities and growth.

Sticking to the code
The ICM met recently with representatives from the department for Business, Enterprise and Regulatory Reform (BERR) and the Business Secretary Lord Mandelson to discuss the progress of the Prompt Payment Code, which is just one part of a much wider campaign designed to help increase the speed of payments to smaller companies. 
 
The code, developed with the ICM and supported by major business organisations, aims to establish a clear and consistent policy in the payment of business-to-business invoices. It is a simple statement of policy and a commitment between a customer and his suppliers. In it, a customer agrees to:

  • Pay suppliers on time – within the terms agreed at the outset of the contract; without attempting to change payment terms retrospectively; without changing practice on length of payment for smaller companies on unreasonable grounds.
  • Give clear guidance to suppliers – providing suppliers with clear and easily accessible guidance on payment procedures; ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers; advising them promptly if there is any reason why an invoice will not be paid to the agreed terms.
  • Encourage good practice – by requesting that lead suppliers encourage adoption of the code throughout their own supply chains.

The code is hosted by the ICM on a dedicated website (www.promptpaymentcode.org.uk) and includes a facility for suppliers to raise concerns about late payers. 

High profile support
The response to the code has been most encouraging. Among the government departments that have already signed up are the Department for Children, Schools and Families, Communities and Local Government, the Department for Culture, Media and Sport, the Department for Innovation, Universities and Skills, the Department for International Development, the Department for Transport, the Department for Health, and the Department for Work and Pensions. 
 
They are joined by a raft of different government agencies, NGOs and trade associations such as the HM Treasury, HM Revenue and Customs, the East Midlands Development Agency, the Northwest Regional Development Agency, the FPB, FSB and IoD. And, arguably of most note within the media, are the major corporates including BAE Systems, British Gas Business, John Lewis plc and Lloyds TSB.
 
The thoughts of just a handful reflect the thinking behind the campaign. Stuart Hopewell, credit manager, FujiFilm UK Limited, says: “Prompt payment can actually result in reduced costs for both debtor and creditor, and increase profitability.”
 
Monica Turner, financial controller of ASDA agrees: “The code absolutely fits our philosophy of saving money every day. Paying suppliers on time means we cut out unnecessary costs from the supply chain, which ensures we deliver low prices and good availability to our customers.
 
“We try and live the code by making our payment processes transparent to suppliers through our ‘Where’s My Invoice facility’. Through this we provide suppliers a view of their account and a way of resolving discrepancies between us and their accounts.
 
“We recognise these are difficult times, particularly for our small suppliers and as a result we have strengthened our query resolution resource for small suppliers.” 

Protecting suppliers
Robert McTiffin, managing director, Nationwide Property Solutions Limited, also recognises that difficult times lie ahead, but that protecting supplier relationships is key.
 
“By paying all our subcontractors at agreed terms, we maintain our own integrity and get priority service,” he says.  
 
“By guaranteeing prompt payment, the best subcontractors want to work for us. Paying on time means that suppliers will do more for the same price; subcontractors will put themselves out for us; we receive referrals and recommendations as a preferred client; and we don’t waste time responding to payment enquiries. In short, everyone wins.”
 
Paul Bennett, head of purchase to pay solutions, BBC, shares a similar view: “To ensure strong commercial relationships it is essential that suppliers know when they can expect to be paid and understand any circumstances that may cause delay in payment. 
 
“Through our website – Supplying the BBC – and deployment of e-tools we are increasing visibility of the payment process to our suppliers.”  
 
The code is working because it focuses on three main areas that anyone involved in credit understands: a commitment to pay suppliers on time; to give clear guidance to suppliers; and to encourage good practice. 

For more information
Web: www.promptpaymentcode.org.uk

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