The main causes of late supplier payments
The study of 850 procurement leaders across the US, UK and Europe found more than half (52%) of businesses have paid suppliers later compared to 12 months ago due to higher costs and market uncertainty. The study reveals this is creating significant delays in supplier payments: businesses are paying suppliers 22 days later on average, while a fifth (21%) are paying suppliers a month later or more.
The statistics from Sapio Research on behalf of Ivalua shows businesses are paying suppliers 22 days later on average compared to 12 months ago.
This delay in payments is putting smaller suppliers at risk of collapse. The Federation of Small Businesses claims 50,000 UK business closures could be avoided each year if late payments had been made at the right time and as promised. Late payments are also damaging supplier relationships – previous research from Ivalua found that 59% of UK businesses reported that suppliers had ended relationships with them due to repeated late payments.
Global cash flow crisis
Firms that don’t take measures to speed up payments could also be at risk of non-compliance. The UK government is preparing to launch tougher measures to tackle late payments to small businesses as part of its upcoming Prompt Payment & Cash Flow Review
“High interest rates, increasing market uncertainty, and rising costs are exacerbating the global cash flow crisis. Last year, more than a third (36%) of UK businesses extended payment terms for suppliers, and our data shows the problem has only got worse,” comments Stephen Carter, Director of Payments Strategy, Ivalua. “Delayed payments are stalling available funds for businesses, causing untold disruption and stifling innovation. Businesses must play catch up on payments to reduce the pressure on suppliers. If not, they risk putting their suppliers out of business and operations will grind to a halt.”
Technological challenges
Currently, there are a number of technological and operational challenges preventing organisations from addressing payment delays. Previous Ivalua research found 35% of UK businesses have a severe lack of visibility into payments, and 58% reported a disconnect between procurement and finance teams, making it hard to pay suppliers on time or to manage finances.
“Without visibility into the entire spend cycle, delaying payment is a damaging option to manage cash flow – it’s like driving a car in first gear,” continues Carter. “Businesses need much greater control over spend – allowing a range of working capital gears to be available. This will ensure organisations can inject cash into the supply chain when it’s needed, while benefiting from higher levels of automation, lower fraud risks, and lower costs.”
“As shortages rumble on in 2024, in-demand suppliers will become increasingly selective about who they work with, prioritising their ‘customers of choice’. So, paying on time is vital to building trust and securing strategic sources of supply,” concludes Carter. "Organisations need to build trust with suppliers, moving from reactive to strategic payments that will reduce risk while driving long-term savings. For example, using early payments to support suppliers and secure discounts at the same time, or paying on a milestone basis to reward suppliers for meeting project deadlines.”
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Other magazines that may be of interest - Supply Chain Magazine | Sustainability Magazine
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