Being paid on time is something every business has a right to, regardless of the number of people it employs. The Grocer’s recent article about policy changes to the Prompt Payment Code having unforeseen consequences clearly outlined the risks – such as threat of closure – that a culture of late payment presents for many small grocery suppliers. Grocers need to heed the impact on their loyal customers and supply chain if more small businesses fail in the next year as a result of cashflow issues.
Shoppers have come to love the small and innovative new brands that meet the growing demand for different. With grocers already concerned about current supply shortages, it would be disastrous if these were further exacerbated by more small business failures. It’s in everyone’s interest to keep the money moving throughout the supply chain.
Of course it’s clearly in everyone’s interest if all businesses agree to fairer and prompter payment terms. Every business, regardless of their size, can be affected by late payments. The knock-on effects of not having enough cash in the business to pay staff or your own suppliers trickles down through suppliers to people. It impacts the mental health and wellbeing of families and even entire communities.
However, the fairer terms that signing up to the Prompt Payment Code promises are only part of the solution for cash-strapped suppliers, many of whom are still managing finances in a fairly manual way. Digitising the payment process would also help smaller suppliers to better manage their cashflow.
Indeed, working on fairer terms without addressing the payment request and process flow fails to acknowledge the fundamental frictions that exist when businesses just want to get the money they are owed in good time. Automating payment requests and making it easier to pay is as relevant for suppliers whose customers are signed up to the code as those who aren’t, even if they are honouring the spirit of fairer terms.
The reality is that nearly half of small businesses (37% of small businesses working in retail) create invoices manually, according to YouGov research we commissioned among SMEs. Manual invoice creation means smaller businesses will spend a lot of time tracking and chasing payment for their invoices – has it arrived, when will it be paid, is the money in the bank? Manual checks are needed at all of these stages, which is time-intensive and slows down payment flow. Adding simple digitisation to processes related to cashflow – such as an automated request to pay with a QR code or an automatic alert of where an invoice is in the customer process – makes it easier for small suppliers to manage cashflow.
In short, the easier it is to make a payment, the faster that payment is likely to be - ensuring suppliers can spend less time worrying about cashflow and chasing debts, and more time growing their business.