Writing in City AM, Sage UK managing director Alan Laing was right to point to the huge economic waste which slow payments cause, as money is held up in the system and small businesses are deprived of the opportunity to invest and grow. Not to mention the stress caused to hard-working entrepreneurs from struggling to chase down slow payers and make their bills at the end of the month.
In the conversation around late payments we can all too often, however, slip into a slightly caricatured view of multinational businesses uncaringly ignoring their suppliers and refusing to pay their dues.
For the vast majority of businesses, that simply isn’t the case. From supermarkets to high-tech manufacturers, businesses understand the value of a quality supplier and invest time and recourses into cultivating their supplier relationships.
Alan points to a very important part of the late payment problem, changing the culture among both large buyers and small suppliers to make payment at the earliest opportunity the norm. But buyers know that late payments hurt them; in their relationships with suppliers, their reputation with the public and even the price they pay, as slow payments drive up suppliers’ costs. Changing the culture is essential, but to do it we need to provide multinational buyers with the tools to facilitate faster payments.
The principal reason it takes so long to pay a supplier is the complexity of a large corporate buyer’s payments process.
Finance departments have duties to regulators to ensure that their suppliers are who they say they are and must complete the required ‘know your customer’ and anti-money laundering processes before money can change hands. They also have a responsibility to the wider company to make sure that invoices are correct and not fraudulent, that means checking each and every invoice manually.
All this means, before an invoice can even be agreed upon, a supplier must wait anything from a month to 90 days or more.
To speed up payments for suppliers, we need to look at how we can speed up processes for buyers.
Businesses have been trying to do this for some time. But systems such as e-invoicing and payment models like supply chain finance don’t adequately address this core issue around the length of processes, and actually add new financial and administrative burdens on suppliers. These are partial solutions, for a privileged select few (the biggest suppliers).
Now, however, a new generation of artificial intelligence (AI) technologies could really crack this problem. AI can sift through thousands of invoices and identify only those invoices which are risky enough to need a human to check them, the rest can be fast-tracked through the approval process.
Not only that but, as the likelihood a buyer will (at least eventually) pay their bills remains very high, a financial institution can, at very low risk, pay the vast majority of ‘good’ invoices straight away. This allows the supplier to avoid sluggish payment processes altogether and the buyer can then repay the financial institution in its own time.
Fixing supplier payments is more than just a question of culture change. It’s in the interest of multinationals to have their suppliers paid fast, not slow. Buyers and sellers alike want this solved, we just need to give them the right tools to make it happen.