The Tungsten Network’s initial ‘Friction Index’ report has found that slow internal processes and a lack of automation are proving to be the biggest challenges for business when it comes to paying their suppliers on time.
The crisis in numbers
The Friction Index found 47% of businesses admitted that one in ten payments to their suppliers are made after the agreed deadline, usually being paid within an additional 30 to 60 days. This causes huge problems for suppliers relying on their customers paying on time.
Of this 47%, an additional 16% of businesses admitted that a fifth of payments made are never on time. In fact, only five percent of businesses say they pay their suppliers within the time promised. You may not be surprised to find out that one in every twelve UK businesses admit that they don’t monitor their payment practices at all.
There are new UK laws set in place which require companies to report on their payment policies, practices, and performance. It’s a new initiative headed by the Department for Business, Energy and Industrial Strategy (BEIS), and aims to tackle late payment issues. One of the new requirements is that businesses with an April year-end will need to report as early as November the previous year.
The Friction Index found a number of issues that businesses stated as challenges when it came to paying suppliers on time. They are as follows:
64% – Slow internal processes
39% – Lack of automation
27% – Administrative errors
20% – Team capacity to manage the volume
16% – Managing cashflow
Tungsten Network’s Friction Index report found that supply chain ‘friction’ is costing the average UK company a significant £88,725 annually, with more friction being experienced by businesses that employ over 1,000 workers.
Who’s to blame – Businesses or Suppliers?
Brian Cuthbert, executive director of IOFM, said that late payments “negatively impact working capital, economic production and partner relationships. The Friction Index reveals that the problems caused by late payments can be eliminated through automation.”
Tungsten says that 125 hours are wasted on procure-to-pay (P2P) friction per week, per business – hours that could easily be used for more productive endeavours were businesses and suppliers to modernise their payment methods.
In short, though late payments are often blamed on a business’ ability to manage cashflow, the systems set in place by suppliers to collect payment with are outdated and clog up the supply chain.
E-invoicing has grown in response to an increase in global transactions, as businesses realise that switching to quicker, more automated methods have a positive impact on being paid on time.
Payment in a digital age
Rick Hurwitz, Tungsten Network CEO, said he was surprised that businesses are failing to streamline their payment processes in a “digital age where suitable technologies are available.” Many businesses are still spending time chasing up invoices or having to deal with suppliers doing the same – this means they’re missing out on opportunities for “growth with existing customers”, said Hurwitz.
Not only that, but there doesn’t seem to be a universally adopted system which allows both suppliers and businesses to see their payment history. Hurwitz said, “If all the data from past invoices is easily accessible, opportunities to identify variances that will target inefficiencies are more visible.”
However, many suppliers will argue that the ‘friction in the supply chain’ is down to businesses not paying on time, due to cashflow problems, administrative errors, or just plain laziness.
SupplyChainDive’s website says that “late payments to suppliers are disrespectful”. If you want to have good suppliers, they urge businesses to be “a good customer”. After all, if your paycheck was withheld in the interests of protecting cashflow, or because the payroll organization was backed up, there would be uproar!
The takeaway – What’s next?
It’s high time that businesses and suppliers alike began modernising their payment methods. After all, 36% of businesses surveyed by Tungsten Network identified getting rid of P2P friction as a top priority.
With the advent of digitised invoicing, and faster, more automated payment methods, there’s really no reason why modernisation can’t take place immediately.
To talk about modernising your invoicing system and getting paid faster, speak to Smart Team on 01202 577 500 or email email@example.com.