Fair Payment Campaign

What is the issue?

In May 2009, Business in the Community considered the impacts of the recession on companies’ business practices. A need to maximise cash flow, especially when bank credit was scarce, had led some companies to pay suppliers later than agreed. As a result, first tier suppliers were unable to pay their suppliers and late payment flowed down through the supply chain, affecting not one business but several. Supplier volatility presents a major risk to supply chain continuity; for example, Argos recently lost 38 percent of its furniture supply as the result of a supplier going bust.

What research have BITC done?

BITC recently undertook research to establish the scale of the problem. We convened a roundtable discussion with Heads of Procurement from 15 member companies, conducted confidential interviews with suppliers and held discussions with the Department for Business, Innovation and Skills and the Institute of Credit Management. The research suggested that average payment terms had not significantly lengthened over the past 18 months, and where both customers and suppliers had effective invoicing systems, few problems were experienced.

However, the research highlighted a need for procuring companies to:

• Adopt a positive approach to supplier relationships across the organisation, ensuring all relevant personnel understand the risks of late payment to supply chain sustainability and continuity;
• Provide new or infrequent suppliers with the right information and guidance to ensure that they follow invoicing procedures correctly, thereby avoiding unnecessary delays;
• Recognise the varying needs and capacity of different suppliers, and potentially adapt how they work with SMEs to ensure processes are not unnecessarily burdensome.
  

What action can you take?

We have identified the following actions that members can take to ensure fair payment:

1) Conduct an internal review of your payment terms and actual payment days to ensure you are paying your suppliers to terms;
2) Sign the Prompt Payment Code as a public declaration of your commitment to fair payment;
3) Encourage good practice amongst your suppliers.

Members who take action and sign up to the Code can benefit from the following:

• A better understanding of your suppliers and more positive relationships, with increased openness and trust potentially leading to greater collaborative innovation;
• Reduced supply chain volatility and risk, with associated cost savings;
• Positive publicity through a ‘First 100’ press release celebrating the commitment of the first 100 BITC members to sign up to the Code.