New legislation that has trickled down from EU guidelines means that local government now has a duty to be fully transparent when it comes to payment performance.
As a result, more and more councils are taking the opportunity to champion early payment schemes to boost their payment records, improve relationships with their supplier base & ultimately strengthen the local economy.
The latest research from Bacs Payment Schemes Limited (Bacs) shows that the late payment debt burden shouldered by UK businesses has reached £46.1bn. Moreover, 60% of UK SME's are now experiencing late payments.
The knock on effect of late payments means that a quarter of companies are being forced to pay their own suppliers late, with one in five saying that late payments are forcing them to rely on credit solutions such as overdrafts and credit cards.
Local councils have always been aware that they need to be exemplars of prompt payments, and many of them are championing good practice. However, many are still falling behind with much more to be done.
Early Payment schemes are now increasing in popularity amongst councils and companies such as Oxygen Finance Ltd are working in partnership with local authorities across the country to enable early payment to suppliers.
The model is relatively simple; participating companies that sell to the council will have their invoices fast-tracked weeks in advance in return for a small negotiated deduction for the accelerated payment. This gives suppliers the ability to alleviate potential cash flow problems by giving them quicker access to their payments
One council that is already reaping the benefits of the adoption of an Early Payment Programme is Barnsley MBC. Its leader, Sir Stephen Houghton, is now encouraging all local councils to sign up to early payment schemes.
Sir Stephen said: 'It has been good for us, and good for business. We are all under the same pressures, so get engaged – it is important that all councils recognise that it's not just residents that have needs. The business community matters too.'
As council budgets are getting ever tighter, more innovative ways to save money and/or raise revenue are desperately sought. This solution therefore helps deliver some of the expected savings.
However, Neil Copley, Service Director for Finance at Barnsley MBC, said that it's not just about the money. 'Encouraging early payments also allows us to establish better relationships with local businesses – this is the real added value that all local authorities should be looking at.'
John Healey, the MP for Wentworth and Dearne also added that: 'Many councils in the North have become stellar examples of how strong a town can become when the public sector works hand in hand with businesses to support jobs, growth and enterprise.
'Guaranteeing prompt payment to their own suppliers is a practical and proven way for all local authorities to help local firms in their area. Barnsley council is a national pacesetter in implementing early payments schemes - and other local authorities can learn from their example.'
The definition of what constitutes a late payment is still too vague to drive change. For example, if an invoice had a 90-day term and is paid on the 89th day, this is still technically on time. However a 30 day invoice paid on day 31 would be late. This vast difference in terms illustrates the difficulties all suppliers and particularly SMEs face.
As national leaders keep reminding us, SME's are the ‘lifeblood' of the UK economy and councils should be doing all they can to boost relationships and in turn build strong local economies – Early Payment solutions are just one of the ways that can help local authorities do just that.
Alex McNab is a public service finance commentator
