Let me explain by example. Andrew was offered work by a big firm, a household name that I won’t mention. He was told that the firm pays in 30 days. Andrew quite understandably assumed that the payment would appear in his bank account 30 days after he supplied the goods and sent in his invoice. It was 210 days before the money arrived.
Procurement probably didn’t know that the process in the company of which they are a part is so complex that 30 days payment terms is just a pipedream. What came after receipt of the invoice is an approvals system with 20 different approvals points in it. Why? My guess is that the approvals system has grown over time with everyone wanting to have their say, and it’s become a monster by chance rather than design. However, having 20 points of approval means there’s probably no way to control the time an invoice takes to travel through the ‘system’. In Andrew’s case the invoice got spat out of the approvals process around 5 months later. It then went, approved for payment, to the Accounts Payable department which does pay in 30 days, but 30 days end of month, which in Andrew’s case meant 60 days. In total Andrew had to wait 210 days for his money, after submitting his invoice.
There are 2 big questions here. Why don’t firms that have these out of date processes change them to be more efficient and pay quicker? And how are small suppliers like Andrew supposed to survive in the face of such uncertainty about when they’ll be paid?
Big firms do sometimes hold back money on purpose because they have lots of other things they’d prefer to spend it on than your invoice. They are essentially using you as a bank. Try not to give them the option of doing this by being very clear at the beginning:
before accepting the work, set out that your payment terms are xx days and that you will expect to see the money hit your account xx days after you submit the invoice;
make sure you aren’t contributing to a delay check right at the beginning what details need to go on your invoice to make it payable such as get a PO number if one is required before you start the work;
find out who in Accounts Payable will be handling your invoice so that you have a point of contact and call that person a week before the payment is due to check that the money will be arriving on time.
Big customers need to realise that small suppliers can’t wait for long periods before they get paid but some of the people working in big firms have never run or worked for a small firm and really don’t understand how critical a small payment may be and how critical it is that it is paid quickly. Sometimes you need to be brave enough to explain that to a customer.
Not all firms mean to make you wait for your payments beyond the due or agreed. Some simply don’t understand the convoluted nature of their own processes. Sometimes processes are allowed to carry on as they are because no one says ‘this isn’t working’. Sometimes things are done because they’ve always been done that way, and nothing will change until someone challenges it or says ‘I won’t work for you’.
Some big companies are spending vast amounts of money improving their payment systems. To get the full benefit for everyone that means small suppliers have to opt into the new systems and some big firms tell us that getting small suppliers to sign up is difficult. Embrace the technology even if it does mean finding time in your hectic schedule to get to grips with the new processes. You’ll be investing for the future.
And finally investors, would-be talented employees and many other stakeholders, including suppliers are demanding that the companies they with work with are ethical and behave well to their suppliers all along the supply chain. That will increase the rate of improvement in payment practices eventually. We all have our part to play.
