A More Sophisticated Approach to Purchase to Pay is Required

A More Sophisticated Approach to Purchase to Pay is Required

Purchase to Pay, P2P and Dynamic DiscountingLate payment is a blunt P2P weapon and it’s disappointing to read in Supply Management that small suppliers are waiting longer than ever.

Nick Martindale reports that research performed by BACS in the UK found small and medium-sized companies had to wait an average of 41 days beyond the agreed payment date before invoices were settled in the second half of 2009; a rise of 9.5 days on the previous half-year’s figures. Large organisations were named as the worst offenders by 37 per cent of small firms; twice as many as the second-placed group in the list (17 per cent said sole traders and other small businesses were mostly to blame). It is pleasing to note that government departments and not-for-profit organisations were seen as the main problem in just 6 per cent of cases.

So what is going on? Are large organisation flexing their muscles to hang on to cash that bit longer? Are they employing their vast array of procurement technology options to fine tune their financial supply chain to optimize their treasury mangement strategy?

They wish!

I’ve heard companies brag about their ability to keep small suppliers waiting while they benefit from improved cash flow, yet in 100% of cases when I’ve had the opportunity to look under the hood, late payment is either directly caused by or inspired by incompetance. More often than not, an incompetant finance team, under resourced by an incompetent CFO who doesn’t appreciate the supply chain pain that their under resourcing costs.

I want to ask the CFOs responsible for the increase in late payments a question: Paying early and using Dynamic Discounting can give you a return on capital of over 30%. In 2010, when interests are practically zero, how does that compare to the return you get paying 41 days late?