An Open Letter to the UK
A January blog wouldn’t be complete without a reference to the New Year, and a fresh start. But 2023 is looking like a challenging year for businesses, being optimistic in the face of rising costs and a looming recession is a big ask!
Liz Barclay, Small Business Commissioner addressed it on the 9th January using the Dicken’s Christmas Carol story of Christmas Past and Christmas Future. Her open letter to all UK businesses called for just one New Years’ Resolution.
Pay Suppliers Quicker
Her letter talks about success being based on Trust, Reputation, Respect and Culture, all of which are tied into paying suppliers on time.
“You have no business without your suppliers of products or talent. It costs time and money to find new ones. Each supplier has soaring bills to pay and is competing on wages for good people. They need you to pay quickly so they can manage their cashflow. Credit is tightening and many small firms have used up all their financing options. If you don’t pay invoices quickly your whole chain crumbles.”
A crumbling supply chain is not the only casualty. If your supply chain suffers your products and services suffer too. You lose customers and potential investors. Your undesirable reputation means you struggle to recruit top flight team members and your workforce is affected. Board members start to ask uncomfortable questions. Not a good start to a New Year.
Starting 2023 with a plan in place to improve your payment terms is not only good practice but will set the business in a good place for when the recession eases and growth is back. Below are a few suggestions on what to measure as part of the plan for improving payment times. Most businesses use these KPIs as good practice already, but setting improvement targets based on these baseline figures give a measurable plan of action for the coming year.
% invoices paid on time.
This one is a clear base for an improvement goal.
Average number of days to approve or process an invoice
When looking at this delve deeper and look for a pattern – a supplier that is skewing the figures because they consistently do not provide the information you need on an invoice, an ‘approver’ from within the business that is slow to respond, etc.
Number of suppliers by 1000 invoices
A manageable number of suppliers also means you are likely to have “supplier knowledge”. The smaller and cleaner your supplier base, the easier they are to manage and the higher the chances of successful payments within terms.
Duplicate Payments Rate
A litmus test for the error-proneness of your accounting. Duplicate payments can be caused by manual data entry or by supplier error but also, in extreme cases, fraud. Whatever the reason, reducing this rate will free your team to process more invoices in a timely fashion without wasting resources identifying or worse still, processing and paying duplicates.
Top 20% of Suppliers
When we first engage with a potential customer we ask them to look at the top 20% of their suppliers based on number of invoices. When they review these suppliers, we ask them to look for patterns that cause a bottle neck in processing? Missing order numbers, invoices issued ahead of goods arriving, consistent price variance from original quote or order? By focussing on a small section of suppliers and working with those suppliers to resolve the issues before the invoice arrives gives the AP team a head start on improving processing, and therefore payment times.
By following the code of #PaySuppliersQuicker there is a clear path to facilitating progress and ensuring 2023 sets the scene for growth in 2024. Automating processes where possible will enable the AP team to prioritise the goals set at the start of the year. Measuring performance regularly and setting new targets will keep the team motivated and on track.
If Liz Barclay’s Christmas Carol predictions come true it will mean your business will gain the Trust back from both your suppliers and your customers. Your business Reputation will improve earning you Respect from your employees and your competitors and the work environment will reflect your ESG accurately and develop an innovative and optimistic Culture ready for the challenges ahead.
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