Over the past two weeks, Phil Woolas has been travelling the country, from Brighton to Manchester, for the Labour and Conservative Party Conferences. We spoke to Phil to find out more…
Starting his journey in Brighton at the Labour Party Conference, Phil observed that Corbyn’s unique style and approach to politics had brought to the Labour Party Conference “a very different feel” from previous years. On his visit to Manchester, he referred to the Conservative Party Conference as an altogether more “business-like affair”.
Despite the contrasting styles and political differences of the two Parties, the sense was that both sets of delegates clearly expressed support for the policy to date in respect of the recent Enterprise Bill, as well as the introduction of the Small Business Commissioner. However, some SMEs in attendance expressed scepticism about the difference the new laws around late payment will actually make.
Overall, Phil was delighted to see a notable increase in awareness around the issue of late payment at both events: “It appears that this might be one area on which both parties can work together in order to benefit society”.
So with the political party conference season coming to a close, and the appointment of a Small Business Commissioner on the horizon, what will the biggest challenge be for the person selected for the role? Phil didn’t have to think about the answer to this question for long: “It will be to manage the raised expectations of the business community”, he said.
There appears to have been a great deal of media attention and political focus directed at this area and only time will tell how successful the implementation of these policies will be. So watch this space for regular updates and insights from Oxygen Finance.
The North-East branch of the Civil Engineering Contractors Association (CECA) held an event for its members on 6th October to discuss the importance of cash flow from a supplier’s viewpoint and to explore the funding alternatives available. The event followed a survey conducted by CECA North-East, which sought members’ views on payment-related issues.
The discussion, entitled ‘Cash Flow Chaos – Managing Your Money’, was kicked off by presentations from three invited subject-matter experts: Robert Moretti, CEO of Oxygen Finance Ltd; Sarah Wilson, a partner at law firm Watson Burton LLP; and Paul Brown, commercial credit consultant at trade credit insurer Euler Hermes.
Roberto set the scene by quoting Chris Dancer, Chairman CECA North East: “If the commercial bullying continues then the perpetrators will eventually fall on their own swords as specialist sub-contractors will pick and choose to work for the better payers.”
Roberto focussed on ways in which suppliers (both prime and sub) can preserve liquidity in the face of long payment terms imposed by large buyers or buyers paying later than the contracted terms. He outlined the dynamics of the market, the challenges faced by suppliers and examined the pros and cons of three market options: Factoring, Reverse Factoring / Supply Chain Finance and Dynamic Discounting.
Sarah Wilson provided an overview of the Construction Act Payment Scheme and outlined how to proceed if its principles were not followed, including adjudication, suspension or winding up. Sarah covered the strategies and tactics that can be deployed in not allowing the paying party to get away with systematic reductions from interim applications; in addition to late payment of certified sums.
Paul Brown looked at Trade Credit Insurance as a tool for growth, highlighting how it works and how to trade safely. Paul also provided insights into the structures available, the costs involved, and the importance of the role of Trade Credit Insurance in protecting receivables.
There followed a Q and A session, with the speakers forming an expert panel.
CECA North-East represents over 65 civil engineering companies of varying sizes in an area that encompasses more than 15 Unitary Authorities and three County Councils, stretching from the Scottish borders to the Dales and eastward.
They say money makes the world go round. But for SMEs in the UK today the system is becoming increasingly clogged. New research from the Asset Based Finance Association (ABFA) shows that SMEs are holding a staggering £67.4bn of outstanding invoices (and they believe this is a conservative estimate!) This figure is up 8% on last year, 30% on 2011. On average, an SME waits 72 days for payment, 11 days more than at the height of the recession in 2009.
Some argue that increasing turnover and a growing economy make the increase in late payment inevitable. But that will come as little comfort to struggling SMEs for whom those outstanding invoices can equate to as much as 14% of annual turnover. The government has said that the newly created position of Small Business Commissioner will focus heavily on the issue of late payment, but it may be some time before that starts to make a difference.
When research like this is published, the focus inevitably falls on those holding the unpaid invoices and the difficulties they face. What’s more, instead of looking at ways of speeding up payments, many commentators suggest that firms should see their unpaid invoices as leverage and use them to secure new funding.
Such a reaction might be understandable. But we need to see the issue in the round if we really want to solve it. Rather than focus on just one side of the problem, we need a balanced solution, one that gives an incentive to both buyers and suppliers.
At Oxygen, our two-way incentivised Early Payment Programme provides a complete solution: both sides of the transaction benefit. By agreeing a small percentage rebate, suppliers can see substantial improvements in cash flow by being paid earlier than contracted which, in turn, reduces reliance on credit facilities and protects working capital.
Buyers that introduce such a programme benefit from a new income stream and better relationships with their SME suppliers.
This strategic approach to payment, with significant benefits to both sides, has an increasingly important role to play in unblocking the flow of money through the system. In short, it accelerates liquidity to the SME sector and to the wider economy.
In 2011, Oldham Council teamed up with Oxygen Finance to pioneer an early payment programme that is now being replicated by local authorities across the UK.
Today, the latest payment figures revealed by Oldham Council show that £75million worth of payments to date have been accelerated through the Early Payment Scheme since its inception, benefitting 300 local businesses.
This ground-breaking initiative allows suppliers to the Council to receive payment of their invoices earlier than contracted in exchange for a small rebate.
This enables the Council to help its local SME suppliers to grow by paying them early, whilst generating income, so the local authority can supply the vital services that people need.
The Council has now released the details of the far-reaching impact of the programme.
The government is getting serious about late payment and wants to help small businesses in the UK claw back some of the substantial sums they are owed.
The Enterprise Bill, announced in the Queen’s Speech in June and published yesterday, includes the creation of a new post of Small Business Commissioner. But although the Bill contains a very broad set of measures to help fulfil the government’s stated ambition of making the UK ‘the best place to start and grow a business’, the commissioner’s role will focus heavily on the single issue of late payment.
Announcing the Bill, Anna Soubry, Minister for Small Business, Industry and Enterprise, put the creation of the new commissioner and the focus on late payment top of her list when laying out the ways in which the government hopes the new regime will transform the landscape for small and medium enterprises.
Drawing on statistics from the BACS payment system, the government has stated that as many as a quarter of small firms are at risk of insolvency as a result.
But despite the profile the government are giving to the new commissioner’s role, it remains to be seen just how big a stick he or she will be able to wave at potential offenders or how successful the new role will be in bringing about a business culture in which prompt payment is available to all.
The minister said that the commissioner will be able to ‘investigate’ problems reported by small firms and ‘signpost’ businesses in the direction of mediation services that she hopes will sort issues out more quickly and cheaply than going all the way to court. Soubry added that it was not the government’s intention to ‘name and shame’ late payers but, rather, to get things sorted out quickly and with a minimum of fuss. She hopes that a phone call from the commissioner might be all it takes to get a CEO to whip out the cheque book.
With the number of small businesses in the UK running at a record high, the government sees the sector as a key plank in building sustainable economic growth. Alongside efforts to improve access to capital from banks and other sources, the government clearly believes that getting paid promptly for the goods and services they provide is every bit as important to small firms.
Read our recent blog: Oxygen responds to small business commissioner consultation.
Councils face £10bn of cost pressures over the next five years, according to the latest analysis by the Local Government Association (LGA).
In addition to the £3.6bn of added costs due to inflation and rising demand, Councils also have to factor in the costs of exempting house builders from Section 106 and Community Infrastructure Levy payments for 200,000 new starter homes, cuts to social housing rents, rising business rates appeals from 2017, the National Living Wage and other obligations.
The LGA, which represents more than 370 town halls in England and Wales, urged the Chancellor to bear the issues in mind when finalising the Spending Review.
Chairman Gary Porter said: “Our new analysis shows the significant spending pressures facing councils over the next few years even before the possibility of further funding reductions.”
“Enormous pressure will be heaped on already stretched local services if the Government fails to fully assess the impact of these unfunded cost burdens when making its spending decisions for the next five years.”
Roberto Moretti, CEO at Oxygen Finance Ltd, added: “We recognise the outstanding achievements that councils are making to protect vital frontline services. Anything that can be done to alleviate and partly offset the enormous financial pressures that councils are facing has to be a real positive.”
He continued: “It has never been more important to consider alternative income streams. The fact that Oxygen’s early payment programmes are risk free, non-invasive, fully-resourced and are proven to generate substantial income, whilst accelerating the flow of cash to suppliers is obviously a massive benefit to the increasing number of local authorities adopting our programmes and their supply-chains.”
Lewis Mitchell, Oxygen’s Director of Sales and Commercial, shares his thoughts on the recent Small Business Commissioner consultation conducted by the Department for Business, Innovation and Skills. The consultation, published on 26th July, focuses predominantly upon the role that a Small Business Commissioner could play in supporting SMEs, alongside the potential purchase-to-pay (P2P) culture change required in the future. Here’s what Lewis has to say…
Oxygen greatly welcomes the measures set out in the Late Payment of Commercial Debts Act, as well as Regulation 113 of the Public Contracts Regulations. The transparency and liability reporting requirements provided for in Regulation 113 are without question a positive move, although we note that the production of this reporting suite will, for those public sector bodies that are not already Oxygen clients, be a manually intensive exercise, at least at first.
Targeting the cause of late payment
An effective Early Payment Programme addresses the root cause of late payment. It introduces the missing incentive to drive efficiency into the buyer’s P2P processes, improving compliance with prompt payment legislation. It also goes beyond that to deliver the capacity to pay suppliers early and engages with the supply base to generate, in an automated, transparent and accountable manner, Early Payment Rebates for the buyer corresponding to the liquidity and associated benefits actually delivered to suppliers.
The procurement tail
Many buyers, due to the characteristics of their spend with SMEs (typified by a large number of small suppliers, frequently running into the thousands, with a low spend per supplier and often low average invoice value), find it uneconomical to engage with this segment of the supply base.
This can often mean that SMEs are side-lined in any supplier engagement programme. For example, our experience of early payment offerings, which can provide liquidity from a non-bank source and improved process efficiency for the supplier (just as for the buyer), are often targeted only at VIP and Tier 1 suppliers. While Oxygen programmes have the ability to penetrate much deeper into the supplier “tail”, this is far from the norm.
Failure to claim late payment charges
A number of potential measures are available to address the consistent failure of suppliers to claim late payment charges effectively, and to turn the application of these legal rights into a routine process, rather than a last resort that represents a nail in the coffin of a failed supplier/ buyer relationship, viewed almost comparably to a lawsuit. These measures could be viewed on a scale from a simple obligation for the buyer to calculate the value of late payment charges on the one hand, through the requirement for buyers to publish and accrue for any such unpaid charges, to a need at the other end of the scale for the buyer to pay all late payment charges automatically.
As is often the case, a change in culture may be best effected by public sector buyers leading by example.
The question for the minister is how far down this scale it is appropriate to go and how quickly the desired culture change is required.
For more information or to discuss any of the points raised in this article please contact Lewis at email@example.com or visit the Oxygen Finance website.
Despite governmental efforts to enforce a code for prompt payment, the proportion of SMEs suffering from the chronic issue of late payments is still rising at an alarming rate.
A recent industry study has revealed that more than half of UK businesses are now having to wait in excess of 30 days for payments from buyers, adding greater urgency to government plans to tackle this pressing problem. The research has shown that the number of SMEs suffering from late payment jumped by nine percentage points in the second quarter of 2015 against the corresponding period of last year.
The UK’s five million smaller firms are now owed an astonishing £26.8 billion in overdue payments.
On a regional level, businesses in the West Midlands, Yorkshire and Humberside are suffering the most, with those dealing with late payments in the North East doubling from 25 per cent in the second quarter of 2014 to 50 per cent in 2015.
The Forum of Private Business (FPB) has stated that the Government should “faithfully transpose” the EU Directive on late payments. This would mean that businesses could automatically claim interest on late payments, charging a minimum fee of £36 for costs incurred.
There is no doubt that the impact of such claims on public sector organisations and large corporates could be financially very significant as well as being damaging reputationally. However, there is still a major question mark as to whether legislation will result in driving more liquidity into our SME community.
Supplier payment incentives critical
Suppliers already have recourse to legislation that entitles them to late payment penalties, although in reality very few choose to go down this route for fear of impacting upon valued relationships and losing future business opportunities. Roberto Moretti, CEO at Oxygen Finance Ltd believes that this issue can only be addressed effectively where participation for both the buyer and supplier is incentivised:
“The strategic introduction of an early payment programme is highly beneficial for a buying organisation, not just in terms of the additional income from early payment rebates but also through improved payment efficiencies, enhanced reputation for social responsibility and the positive working relationships that will be fostered with suppliers.
The buyer-seller relationship is more than a matter of repeated commercial transactions. A strong relationship with a valued customer gives a supplier the much-needed cash flow and confidence to plan ahead, invest, expand and create jobs, contributing to the local and wider economies. Given that the issue of late payment to SMEs is particularly marked in the North of the UK, the opening of our new Northern office is very timely indeed.”
Aberdeen City Council has launched a new early payment programme that will benefit suppliers who provide goods and services to the local authority.
The City Council is delivering this new service in partnership with Oxygen Finance Ltd, widely regarded as market leaders in Public Sector Early Payment Programmes.
The Supplier Incentive Service (SIS) will speed up the processing of invoices, which will help local businesses by improving their cash flow, while also generating an income for the council.
Under the SIS programme, payments will be made as soon as an invoice is authorised, rather than waiting for the contracted payment day.
In return for suppliers being paid early, a small agreed rebate will be deducted from the invoice value.
The rebate is proportionate to the number of days that the payment has been accelerated by, and is only applied if the early date is achieved.
All that businesses have to do is submit invoices electronically. E-invoicing reduces invoice and credit control costs, assures timely delivery and avoids risk of errors.
Aberdeen City Council’s Convener of Finance, Policy and Resources, Councillor Willie Young, said: “This is a great initiative that will help businesses to support the local economy while also generating an income for Aberdeen City Council which can then be reinvested in delivering important services to residents.”
“It is another example of the City Council using technology to become more efficient and cost effective in the way we conduct our business.”
Further details on the SIS can be found online at www.aberdeencity.gov.uk/sis
Oxygen Finance Ltd has opened a new office at Earl Business Centre in Oldham to provide a Northern base from which to manage relationships with existing and new clients in the North of England and Scotland. The new office is based in a former cotton mill built in 1860.
Simon Whittle, Director of Client Solutions at Oxygen said:
“We currently work with a number of local authority clients in the North of the country and until now had several employees working remotely to manage those relationships.
“As Oxygen continues to grow, it makes sense to establish a base in the North and as Oldham Council were our first client, it seemed natural for us to reinforce our commitment to Oldham by sourcing our new premises via the Council.
“The office works really well for us and gives us greater opportunities to expand further in the North. We have employed three new members of staff locally since the start of the year and the new office will help us manage relationships with our existing Northern based clients more effectively.”
Oxygen is working with a growing number of local authorities across the country, including Oldham, Warrington and Barnsley, to deliver automated Early Payment Programmes, which enable the authority to generate a new source of revenue from their existing transactions. At the same time, the early payment solution ensures suppliers are paid faster which improves cashflow and helps towards building stronger local economies.
Oldham Council was the first public body to introduce an Early Payment scheme via Oxygen Finance and to date nearly 300 suppliers have signed up. Since its inception approximately £75m of payments to suppliers have been accelerated.
Roberto Moretti, Oxygen Finance Chief Executive, said: “Late payments to local suppliers have a real impact on business communities and we believe that local authorities are in a unique position to help the situation by accelerating payments and ensuring their suppliers maintain a solid cashflow.
“We’ve already had huge success working with forward-thinking councils like Oldham, and have now set up our new Regional Hub there. This will enable us to reach out to other large organisations in the North of the UK, to work with them to quicken their payments to suppliers and to create a new income stream in the process.”