Can early payment programmes help?
Addressing this issue would provide a huge boost to the economy and power growth for hundreds of thousands of small suppliers.
One such solution is supply chain finance (SCF) that allows a bank to forward the value of an invoice, minus a small charge, on to the supplier just a few days after the invoice has been approved by the buyer, and the bank then recoups the money from the buyer. In Carillion’s case, it might take 20 days to approve an invoice, so this would mean the supplier could be paid by a bank after 30 days instead of waiting for 120 days. Carillion did indeed roll out such a programme over the last few years. While this sounds beneficial, it is important to bear in mind that traditional SCF is only available and appropriate for the very largest of suppliers, typically only the largest 1%, who are usually FTSE 100 companies themselves.
Not only are SMEs left out, but SCF can actually make it worse for them, because now the largest suppliers are getting paid well ahead of the SMEs, who have been pushed to the back of the queue.
Large corporate buyers need to make any early payment programmes available to the entire supply chain, including the smallest suppliers for the smallest invoices. This is not just a moral imperative, buyers stand to make significant competitive gains by becoming a ‘buyer of choice’ for their suppliers and avoid growing reputational risks from treating suppliers in a way which is perceived to be unfair by regulators and the public.
In fact, with SMEs contributing the majority of growth in the economy, we would all benefit from improved early payment programmes. These programmes need to be made available not simply on a theoretical basis, but they also need to be practically accessible, so that an SME is not excluded because it can’t cope with the high technology, onboarding and administrative burdens. In today’s digital world, that is perfectly achievable.