...and the government is set to get even tougher with the late payers

By Guest Contributor, Caroline Wigley - Documation

Late payment and the issues it causes are in the news. In fact rarely a day goes by without some mention of the scale of the problem – the devastating consequences for businesses owed money, the negative effect on the economy as a whole, and the increasingly severe measures proposed to stop the practice.

With the May general election only three months away, it’s an issue figuring on the agenda of the political parties with the promise of policies from all to address the problem.

Figures released this month from payment services provider Bacs put the amount owed in overdue payment across the country as £41.5 billion, with SMEs owed a staggering £32.4 billion, and large corporates £9.1 billion. Worldwide, according to a report by Insurance News Net, $2 trillion is owed in late payments.

Businesses owed money are unable to expand - put recruitment plans on hold, and resulting issues with cash-flow, can lead them to defaulting on their own payments. Many are brought to the brink – in a recent article The Scotsman reported that during the recession around 4,000 companies failed due to late payment of bills, and further said that 60 percent of SMEs are paid late on a regular basis.

However, it’s a growing problem for the late paying organisations too, who risk losing not only their reputation but also valued suppliers, as well as late payment penalties and compensation measures affecting bottom line and profit.

And this all has a knock-on negative effect within communities and the overall economy – no wonder the government is getting tougher with late payers.

The UK’s Prompt Payment Code was set up to drive ‘a change in payment culture’ and encourage organisations to pay suppliers on time, and the updated EU Payments Directive of March 2013 has as its aim, ‘reducing the culture of paying late and making paying on time the norm’. The parliamentary Report from the All Party Inquiry into Late Payments in Small and Medium-sized Enterprises provides advice and support for SMEs plus proposals for halting the practice itself.

The Department for Business Innovation and Skills’ consultation Business payment practices and policies: duty to report asked for views on ‘proposals to make companies report on their payment performance to help create responsible payment practices’, and earlier this month it was announced that the ‘government is bringing in tough new laws and bulking up existing codes of practice to tackle the issues of late payment’.

And which all add up to increased pressure on organisations to pay on time.

So what can be done to help?

In many cases late payment is not a policy decision or even due to cash-flow issues, but the result of lack of visibility and control over the payment process – in many instances over procedures outside the Accounts Payable department’s control.

Many organisations we talk to point to business procedures having grown and developed over the years as the business or service provider itself has grown and developed.

Add in having to deal with paper invoices, and these problems can be exacerbated: procedural constraints resulting from staff required to physically move invoices through the business; for the AP team there’s lack of – if not zero – visibility and control while invoices sit on a desk in a department perhaps in a second location; and it’s impossible to efficiently source information needed to answer queries.

Accounts payable automation with an invoice management solution can help. With automatic document and data capture, high performance automated matching, and online coding and authorisation, the whole process is streamlined. Instant document retrieval means disputes can be resolved quickly.

Processing bottlenecks can be identified and alerts set to flag approaching deadlines – and visibility and control is enhanced across the whole process with dashboard and powerful reporting tools.

And a further benefit from eliminating late payment, from increased visibility and control? Ability to optimise early payment discount.