Research from employee-expenses advisers Concur has highlighted the daunting scale of the challenge that firms face from late-payments culture – and, according to the firm’s figures, it would appear that no business size has a clean sheet on the matter.
Some 73% of the 1,233 firms surveyed were affected by the problem in one way or another, with 46% experiencing some sort of pinch on a monthly basis.
Medium-sized companies, along with their counterparts at enterprise level, were affected more than small business – with 63% of medium firms running into difficulties in the past month, compared to 49% of large firms and 40% of small businesses. However, medium firms also emerged as the worst late payers, with 56% admitting that they pay late at least once a year – 11% higher than companies at enterprise level, which are traditionally seen as the worst actors on this front.
Concur’s research also shows that approximately 353,000 jobs are lost every year as a result of the problem, comprising £549 million of lost taxation capital. And that sum doesn’t even factor in the average 130 hours, or 16 working days, that a typical SME spends chasing up late payments – so the overall impact could be much, much higher.
But away from the nebulous field of tax revenue, it doesn’t take much scrutiny to distinguish among the figures a tangle of strained relationships over payment between firms of every type – strains that, if left to fester, could become toxic, leaving many organisations with deep, reputational scars. What can leaders do to ensure that they maintain good relations with their suppliers if they don’t think they will be able to cover fees on time?
The Institute of Leadership & Management's head of research, policy and standards Kate Cooper says: “It is to the advantage of everyone in a supply chain that everybody’s cash flow works. Late payments are typically a symptom of one or more partners in the chain failing to understand that basic point. In effect, by withholding or delaying payment, the relationship becomes a zero-sum game: my gain is your loss. But if your gain puts a strain on your business partner, then there’s not just a risk of that firm going under – there’s potential for your own organisation to lose a significant amount of goodwill.”
Cooper explains: “If you’re a bad payer, you’re no longer a preferred customer. You’re not a client for whom a supplier would wish to go the extra mile. You’re not a trusted partner. Late-paying business leaders don’t fully appreciate what they’re signalling when they fall into this type of behaviour. You’re transmitting messages about how you value the relationship, and potentially about the state of your own cash flow or business health.”
She adds: “If there’s a genuine reason for a late payment, then you must communicate and explain that reason very clearly. If your supplier is aware of the mitigating circumstances and sees that they are exceptional, then that won’t detract from your preferred-customer status. If you build up a relationship of mutual trust, then in place of vagaries, annoyance and the impression that passive-aggressive behaviour is underway, there will instead be a climate of mutual understanding and empathy.”
For further thoughts about the value of integrity and trust, check out these learning resources from the Institute