Campaigning organisation Good Business Pays is calling for greater transparency of company payment performance for investors and company directors, as it released a report that unmasks the shocking payment culture at some of the UK’s highest profile business failures.
The report ‘Who Cares: Can Late Payment Culture Be An Alarm Signal of Wider Problems in a Business?’ exposes the persistent poor payment culture in multiple business failures across different sectors. It cites Credit Suisse, Arcadia Group companies, Flybe and Midas Construction as examples.
It comes ahead of a soon-to-be published Department for Business and Trade (DBT) prompt payment and cash flow review, and looks at improving arrangements to support small businesses experiencing difficult payment practices.
Analysing these high-profile business failures, Good Business Pays identified:
- Payment times at the failed companies were slower and later – often twice as slow as their direct competitors who are still thriving today.
- Slow payment didn’t happen overnight. The culture of slow payment was consistent over a long period of time. Clear now after these businesses failed, we believe the warning signs should have been clear to Directors and Investors at the time.
- We see an increase in payment times can be tracked to changes in a business, whether leadership, ownership, events and business decisions
For the reasons set out in this report and more, Good Business Pays believes that payment performance should be more visible and accurate than it is today, for
the benefit of investors, customers, suppliers, and employees. It calls for:
- Adding payment performance to the list of risks they consider as part of their Audit Committee work.
- Better enforcement of compliance to report payment performance. Since 2017, there has been a 25% drop in companies reporting their payment performance data to BEIS, which is a statutory duty. This leaves companies and the individual Directors and NEDs open to prosecution.
- Creating a single definition of when an invoice becomes ‘late’, so companies cannot manipulate the figures to artificially reduce the reported payment times. This practice would provide misleading data to those who govern the company and increase risk.
Terry Corby, Founder & CEO of Good Business Pays said of the findings:
“We have been tracking company payment performance for three years now and have long suspected the link between slow or late payment and the financial health of companies. For the first time, we see this link clearly when we look at the payment culture that existed in companies that failed, many leaving a trail of unpaid suppliers in their wake. Payment performance statistics should be immediately visible to NEDs and investors in the Board meetings and reports, but unlike many other risk factors, payment performance is rarely discussed at the Board and reports are not independently verified or audited. By going back in time to look at companies that failed, we have pulled the black boxes from the wreckage to understand a similar pattern of bad payment culture across thirteen failed companies. We can only see the problems in the rear-view mirror, but NEDs and investors should be asking for this data real-time at every Board meeting and to have reported figures audited. They will then get a true picture of how the cash held by companies is accounted for.”
Jon Geldart, Director-General of the Institute of Directors said:
“The time taken to pay an invoice matters. Not only does it have implications for the cashflow of the company that is supplying the goods or services, but also – as this excellent piece of analysis from Good Business Pays lays out – it can also serve as an early warning indicator of the financial health of the paying company itself. Increasingly, the way a firm treats their suppliers also matters to its retail customers, who use it to make judgements about the internal values and culture of the paying organisation.”
Craig Beaumont, Chief of External Affairs at the Federation of Small Businesses,added:
“In amongst an endemic poor payment culture, we have always suspected that worsening payment performance was an indicator of a large company in trouble. In July 2017, we wrote to the British construction and facilities multinational Carillion, to express concern that our members were reporting delays in payments of nearly 130 days – from one of the Government’s Strategic Suppliers who were getting paid by Departments in just 5 days. Despite denials, in January 2018 the company famously collapsed through compulsory liquidation – the most drastic insolvency procedure in UK law – as its cash position became untenable. In the Parliamentary inquiry that followed, poor payments were confirmed as many small firms remained unpaid.”
Elise Perraud, Chief Operations Officer at NEDonBoard, the Institute for Board Members commented, “Late payment may be a good indicator of a financial problem, where you are looking for financing by paying your suppliers late. As a Non-Executive-Director, you want to know.”
The report is available to download here.