Supplier payment: Is it a risk to your business?

The issue of late supplier payment has been a burden to big business in recent months, with consistent pressure from the UK Government, small business federations and consumer groups to reduce payment terms and change the “culture of late payment” in the UK.

With recent reports that supplier payment terms in neighbouring Ireland were reduced over the past year, and following a set of high-profile supplier payment scandals, many consumer-facing businesses are trying to improve their reputation as companies that treat their suppliers fairly.

This left many of alva’s clients wondering:

• Does supplier payment represent a risk for our organisation?
• Who is targeting companies like mine around the issue of supplier payment?
• What about the Prompt Payment Code?

alva has been tracking the issue of supplier payment for several years, and we’ve been able to offer insight around these questions and many others.

Does supplier payment represent a risk for our organisation?

With intensity surrounding the issue of supplier payment steadily increasing from October 2014, it is likely that B2C businesses will face continuing pressure to revise payment practices. However, some consumer businesses have made recent inroads in improving perceptions of their supplier relations.

Diageo faced criticism when it threatened to extend its payment terms to 90 days in January, but some of this negativity was countered when the company made a “u-turn” on the decision in March. The drinks company’s status as a Prompt Payment Code signatory was credited as prompting the company to change its mind.

Tesco’s March 2015 “simplified” supplier payment announcement is another example of an initiative that contributed positively to company reputation, representing for stakeholders a “move in the right direction” from the retail industry.

Who is targeting companies like mine around the issue of supplier payment?

From mid-2014 to mid-2015, SMEs and industry bodies were key in the conversation around supplier payment, with John Allan (Federation of Small Businesses), John Cridland (Confederation of British Industry) and Phil Orford (Forum of Private Business) discussion leaders.

While not the most vocal antagonists, consumers also drove negative sentiment. For example, influential Twitter users called for boycotts of Premier Foods brands following news of the company’s “pay-to-stay” scheme in December. Prompt payment, then, is an issue with the potential to trickle down from corporate into brand image as consumers become more attuned to what they see as corporate ethics.

What about the Prompt Payment Code?

The Prompt Payment Code represents just one part of the movement against late supplier payment. A Government-backed initiative administered by the CICM, the PPC is a voluntary pledge whereby signatories are held to a set of standards for supplier payment.

The Prompt Payment Code was also recently strengthened following consultation with former business minister (and PPC advocate) Matthew Hancock.

Overall, companies garnered criticism around supplier payment regardless of their status as PPC signatories.

And, while companies like Barclays made an investment in being on the “right side” of the supplier pay issue by helping to form the Prompt Payment Advisory Board in October 2014, they earned only a minor reputational return.

Despite involvement from corporations in other sectors, alva believes that consumer goods companies and retailers are likely to have the most “at stake” reputationally from the issue of supplier payment, and it remains to be seen who (if anyone) will step forward as an industry leader.