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Brexit

Implications Of Brexit: Late Payments

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Some four months have passed following the UK’s decision to leave the European Union and since the result was announced something of a phoney war has been going on. There has been little in the way of tangible consequences, aside from the slump in the pound, which resulted in a very public quarrel between Unilever and Tesco over potential price increases.

 

Scratch beneath the service, however, and there are increasing signs that the uncertainty created by Brexit is affecting business decisions and, as a consequence, having an impact on supply chains.

 

Better late than never?

 

The amount of money owned to small businesses in outstanding invoices is growing, according to new research by Lloyds Commercial Banking.

 

Such companies were, on average, found to be owed £108,000, representing an increase of 8% since January. For a small business that represents a lot of money and poses a significant risk to its survival.

 

Meanwhile, a report from Funding Options found that, on average, small UK construction firms were waiting for payments for 56 days.

 

In times of uncertainty, one of the tools that businesses use to try and protect themselves is to delay payments or extend payment terms. It’s an effective tool but one that has devastating consequences for firms further down the supply chain. Bankruptcies to short-term cash flow are just two potential consequences, so too is damaged relationships between customer and supplier.

 

Delaying payments might not be something that businesses can turn to for all that much longer, at least in the UK.

 

Sarah McMonagle, policy director at the Federation of Master Builders, told BBC Radio 5 Live that new rules requiring big businesses to report on their payment performance every six months will come into force next April.

 

"We are hoping that’s going to have quite a positive impact on naming and shaming the companies that are quite bad at doing this," she said.

 

"We do need some more stick from government in terms of changing behaviour."

 

With the threat of public shaming looming, procurement and finance will need to collaborate to ensure that payments are made on time and work to convince the business that this is the right thing to do – not just for suppliers, but for the compmay itself.

 

A damaged relationship or the bankruptcy of a supplier can have far-reaching consequences for a business – way beyond delivery issues – and all for the sake of keeping some cash in the business for a few days longer.

 

There may be uncertainty around but supplier relationships are too important to risk damaging for what is only a short-term gain.

 

This article is a piece of independent writing by a member of Procurement Leaders’ content team.

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