Last editedJan 20204 min read
Each year, late payment of invoices costs the UK economy £2.5bn, causing cash flow issues that force as many as 50,000 small firms into bankruptcy. Research by the Federation of Small Businesses has shown a growing culture of slow payment among the UK’s large corporate businesses – a trend that has worrying implications for the nation’s small and medium-sized enterprises (SMEs).
To address this trend for late payment, the Government has brought in new legislation, known as ‘Duty to report on payment practices and performance’.
The UK’s biggest private companies and partnerships will now be required to report twice-yearly on their payment practices – making payment performance a clear focus in the boardroom and helping SME suppliers get a transparent view of average corporate payment times.
This proactive drive to reduce corporate-level late payments isn’t just good news for cash-starved SMEs – it’s also a huge opportunity for accountants to help business clients get proactive with updating and improving their payment processes and systems.
By working in partnership with large clients, your firm can help corporates meet their new reporting requirements and enhance the overall performance of payment processes.
The impact for large companies and partnerships
Large companies and limited liability partnerships (LLPs) will have to publish their payment practices and performance online from April 2017. In order to qualify for the reporting requirement, your large business clients must meet two or more of the following thresholds:
£36m annual turnover
£18m balance sheet total
Large businesses that meet these conditions will have a number of elements they’ll need to report on and make public, with the aim of making these businesses more accountable for their payment times.
These requirements will include providing:
Two reports per year – performance reports will need to be published at two points in the year: at the halfway point of the financial year and again at the end of the year.
Online publication of reports – these twice yearly performance reports will be published via a ‘web-based service’ within 30 days of the end of the reporting period.
Breakdowns of payment performance – reports must include clear breakdowns of invoices paid between one to 30 days, 31 to 60 and those that took longer than 60 days to pay, giving a transparent overview of how well the business meets invoice due dates.
Average payment times – in addition, the reports must also state the average payment time across all invoices paid in this period, giving suppliers a tangible understanding of how long it will take them to be paid by this particular business.
Clear processes for payment disputes – large businesses will also need to define the processes they have in place for payment dispute resolution, making it easier for suppliers to know the steps to take when there’s a disagreement over payment.
How to improve payment performance for large business clients
Larger businesses that are affected by the legislation have two key challenges to overcome. Firstly, they need to meet the bi-annual reporting requirements. And secondly, they need to reduce their average payment times to a satisfactory level. Your firm’s professional advice could be invaluable in both areas.
For large corporate-level clients, the challenge lies in advising them on how to meet the new reporting obligations in a timely way, while also giving them direct advice on how to improve the speed and efficiency of their supplier invoice payments.
Some key ways to help these clients improve their performance will include:
Better accounting systems and processes – the foundation stone for any large-scale improvement of payment performance will be a more robust and flexible accounting system. Moving clients to an online accounting solution gives them the benefits of real-time information on outstanding supplier invoices, a clearer view of cash flow and access to the data needed when compiling payment performance reports
A more efficient finance function – working practices within finance teams can always benefit from outside input to streamline the processes and look for more efficient ways to work. Reviewing how the client’s accounts payable team work, and giving the staff hand-on training in using online invoicing and payment technology, will help to pinpoint any issues and get the team delivering a more productive service.
Clear targets and performance metrics – sit down with the client to agree on specific targets and metrics for payment times and work them into your management accounts. With targets in place, you put a real incentive behind their payment performance.
Use tech to improve reporting metrics – Integrate the client’s accounting system with the latest in business intelligence solutions, such as the cloud-based Futrli forecasting tool, and you can provide performance dashboards that track payment times against targets over the course of the six-monthly period – and forecast how performance will vary over future periods as well.
Move to online payment options – Helping big companies to understand the advantages of online payment gateways and automated Direct Debit solutions,
, is a key step in speeding up their performance. If smaller suppliers are offering online payment options on their invoices, help clients to embrace these options. Direct Debit is fast, it’s automatic and it reduces the workload involved in payment – and that’s all going to have a positive impact on large clients’ average payment times.
Meeting their reporting deadlines – as experienced business advisers, your firm can also help large clients to work the new reporting requirements into their business planning. By setting the right compliance deadlines in their 12-month plan, you’ll ensure that the right payment performance data is collected, that it’s tracked over time and that the information is pulled into the required format for online publication of the results.
Helping clients get real control over payment performance
With payment performance and late-payment issues such a pressing problem for UK businesses, the time is ripe for your practice to step in and provide the expertise, systems advice and financial management tips that large corporates clients need.
Talk to your big clients today and find out where those payment pain points are – and how you can work alongside their finance teams to meet the ‘Duty to report’ legislation, improve payment performance and cut those average payment times.
In part 2 of this series we’ll look at late payment from the perspective of small suppliers – with practical tips and ideas for helping SME clients to get paid on time.
Find out more about how using Direct Debit via GoCardless speeds up client’s payment processes.