Learn what accountants think about payment practices in this blog

Accountex 2019 – 01/05/2019 10:00am

Having just read Simon Sinek’s 2011 bestseller “Start with Why” I arrived at Accountex 2019 to see a sea of “what” is delivered to accountants in Industry and practice. The lecture theatres were full of attendees being told “how” to deliver the what. With such a gathering of industry experience and expertise walking the floors as visitors, it seemed to me the ideal opportunity to ask a “why”.

One of the things that intrigues me is whether people “feel” that the slow and late payment culture in the UK harms business, and by implication damages the economy. Particularly whether people feel this is a deliberate act or the result of business inefficiency.

In a quest to find out more about the feeling of the room I randomly approached 35 attendees at Accountex and asked them a series of questions that I hoped would enlighten me. I share my results here.

Long payment terms

I’m concerned about the time it takes for businesses to pay businesses. I’m not alone in this worry: the Federation of Small business (“FSB”) and the Department for Business, Energy & Industrial Strategy (“BEIS”) are very active in this area. It turns out that 89% of those I spoke to were also uneasy about the late payment culture.

The majority did not mention the role of large companies which has been the focus of the FSB and BEIS as well as the Reporting on Payment Practices and Performance Regulation (“PPR”) of which I discuss further below. However, one respondent did suggest an interesting hypothesis of a correlation between higher turnover and poor payment practices.

I asked an additional question of those who expressed concern: should the government do something about it, or should it be left to business to sort it out? The result was very Brexit (indeterminate) with 52% preferring the issue was left to business.

I was keen to know whether people were aware of the PPR. Awareness was low with only 21% aware of the regulation. Most people were interested to know more; I pointed them towards what I see as, “the most timely reporting of the payment practices of large companies available” on the Government website.

Do companies have poor payment practices on purpose?

The key insight I was seeking was whether people felt the slow and late payment practices were a controlled and planned act or the result of business inefficiency. Were businesses generally unable to process invoices for payment within a reasonable time? And were they either offering longer terms to accommodate this or just paying late against agreed terms? The responses suggested another Brexit moment with 52% in favour of business inefficiency.

The advantage of delivering a survey verbally is that the conversations clarify the quality of the result. In this case, it was very clear that most respondents saw it as a combination of both. The issue was felt to be more complex than a binary problem.

There clearly was a general feeling that systems and processes could be improved. Particularly in the case of the larger companies, who it was believed should be able to invest in automated accounts payable processes. In the case of larger businesses, there was a suspicion that slow payment was all about cash conservation.

One of the respondents, who worked in insolvency, suggested 80% of the business failures he came across were the result of poor working capital management.

Most of the respondents were accountants. The majority (71%) were not working in a business suffering from the impact of slow and or late payments. Those in practice identified that many of their clients were, however.

Main takeaways

My main takeaway from this research was an appreciation of the time given by participants. Many were prepared to engage on this subject far longer than the 30 seconds it took to complete the survey.

This particular audience did not support the hypothesis that Accountants, who manage working capital towards the cheapest source of funds, were the root cause of the problem.

My own view on this matter is that the “why” here is a lack of investment in both systems and processes and working capital.

My initial reaction to PPR was that it was a weak response to a serious problem. Having now seen it in operation I am only disappointed with the Government’s failure to enforce it. We have recently seen with Holland and Barrett, and in the past Tesco, that public visibility of this problem can result in corrective action.

This quick and dirty survey indicates that although there is no great appetite for further Government action, there is recognition of a problem that needs fixing. It is time for businesses to act responsibly and for the Government to use the tools it has already put in place.