Where’s the money? by Jane Simms, Director Magazine, February 2009

Our final review is on a financial topic which may be mundane but which is regularly discussed on our courses - the payment of invoices, on time or otherwise. It is also a topic that is important to MTP’s cash flow so anything we can do to educate in this area should pay off for us!!

The issues which regularly come up on our courses are:

• How far is it right for a company to stretch the credit taken from suppliers as long as possible?
  And
• How can companies persuade big and powerful customers to pay on time/more quickly

This article is short and limited but it provides some interesting information and makes some valuable points. It first of all describes a development that I had not previously heard of, the launching by the government of a ‘Prompt Payment Code’ in December last year. Those who sign up to it agree to pay invoices on time, give clear guidance to suppliers and encourage good practice - which it is difficult to argue with. The problem is - who will sign up and, if they do, will they comply? And perhaps more important, what is the penalty for failure?

Apparently the signing up and monitoring is being managed by an organisation that I had previously only vaguely heard of - the Institute of Credit Management. Their goal is to get most of the FTSE 100 signed up quite soon and then begin to monitor compliance, not an easy task but one which the government is presumably rewarding them for. However, the article quotes Nick Wilson of Leeds Business School as rejecting the whole idea, quoting similar initiatives in the past and seeing it all as PR spin. I have to confess some sympathy with this view, though I would love to be surprised.

Wilson illustrates the problem of compliance by saying that even now only 40% of companies comply with the requirement in the Companies Act to disclose payment policy and practice. And all our experience of discussing these issues on courses tells us that, in any case, what companies say and what they do in this area can be very different. This is often not because of deliberate policy but because of systems problems and individual actions, which the less powerful small supplier can do little about.

The article does end with some sensible advice for the small business which we would support for all companies; the most important thing is to agree clear terms for all customers, invoice promptly and accurately and chase in a timely and professional way.

On our courses - which are all for larger companies - this is what we advise on the amount of credit that should be taken from suppliers:

• Financially you should take as much credit as possible and, as you are usually the most powerful party, this could be several months
• But the final judgment depends on the longer-term relationship you want to have with each type of supplier, about which you cannot generalise

And of course pay all management training suppliers dead on time!!