Work on the Fair Payment Code (FPC) carries on unabated (find the details here) since it’s launch in Dec 2024. Expressions of interest are coming in and the FPC Team is working hard to convert those into Awardees. We’re helping firms of all sizes get their ducks in a row and achieve the Award (Gold, Silver or Bronze) they want.
The questions are interesting:
Why would you want an award from the FPC when it requires a lot of work and is voluntary?
Many of the firms that have been given Awards were doing the right thing already. The work involved in getting an Award in those cases is minimal. If you pay your suppliers in a few days you do need reserves in the pot to pay out, regardless of whether you’ve been paid yourself by your own customers. However, the benefit is that being a quick payer increases supplier loyalty. Your suppliers can make good business decisions based on knowing when they’ll get paid and will be increasingly resilient. Your business benefits from that too.
Another question that’s arising is: if I pay my suppliers before I get the money in from my customers that’s costing me money. Yes. That’s true. However, if you contract with a supplier you are promising to pay them even if you don’t ultimately get paid at all. You can’t use them as a bank. Waiting until you get paid, should that take 60 days for example, before paying your supplier could mean your supplier has to borrow (if that’s possible) or to run up debts on overdraft or credit cards while they wait at least 61 days to get paid. At best they may have no choice but to pass those additional costs on to you in increased prices next time. At worst they could be pushed out of business. If you think you can’t afford to pay them quickly and fairly then you haven’t experienced the disruption in terms of time and cost when a supplier goes bust and you have to find a new one you can trust.
Another point potential Awardees raise is that they don’t have reserves with which to pay their suppliers in advance of getting money in from their customers. Ultimately if you think you won’t be able to pay a supplier, you shouldn’t contract them to supply you with goods or services. You may need to find another source of funding to allow you to pay them or be forced to turn down orders. However, if your customer really does want to work with you, they may well be able to offer some payment up front so you can contract with and pay your suppliers. It’s worth having the conversation.
There’s also the issue of reputation. If you have a reputation in your sector for being a good payer you’ll benefit from suppliers wanting to work for you. They may prioritise your business needs over those of other firms in the same sector who pay less well.
Small suppliers need to, and often don’t, do due diligence around how good a payer a prospective customer is before agreeing to supply them. You can do that through credit reference companies or asking for references. The Fair Payment Code Awardees are listed on the Small Business Commissioner/Fair Payment Code Website and you can check there too. Over time this will be a valuable tool for working out which firms you want to work with.
You can set your own payment terms before taking on a piece of work. That’s easier said than done. When you get the offer of what could be a game changing piece of work the temptation is not to ask too many questions or put too many conditions on it in case the customer ups sticks and finds a more compliant supplier. However, deciding to work with a customer who won’t pay quickly, can leave your cashflow in dire straits. If you can’t borrow, or don’t have enough reserves to wait 120 days for example, you could face insolvency. Even just having to chase payment uses up time you could use to find new customers. How do you pay your own suppliers and bills if you’re waiting 120 days to be paid? There are benefits to turning down work if the payment terms mean you could go down the pan while waiting.
We really need more customers and suppliers, big and small, to understand each other better. By working with business owners who want to win Awards from the FPC we’re working to increase that understanding and the understanding of the benefits of paying quicker. That way the FPC will help shift the dial.
