New late payment regulation demands cultural and technical change
A new requirement for large businesses to report on their payment terms and practices came into force in May 2017, as part of an update to the Small Business, Enterprise and Employment Act. Businesses should be no strangers to compliance, particularly in the financial services industry and yet this new ruling adds a new layer of transparency and accountability that needs to be addressed.
Designed primarily to tackle the issue of late payments, the UK Government document says it is “a key issue for business, especially smaller businesses, as it can adversely affect their cash flow and jeopardise their ability to trade. In the worst cases, late payment can lead to insolvency.”
For any business, this will mean an additional reporting burden but does it have teeth? Any business not complying or providing false information will face prosecution, the Government reports. So what does this mean to how businesses manage payment processes?
Compliance and a change of attitude
Certainly, it raises additional accounting questions. Large companies will have to be more open about the average time taken to pay an invoice, for example. How this will impact accounting processes is yet to be determined but there will be an impact. This duty to report adds another layer of compliance and while some companies may baulk at the idea of revealing payment terms and times, the reality is that there will have to be a change in attitude.
Transparency and accountability are increasing buzz words, not just in finance but in business in general. While the regulations may or may not have the desired impact in terms of reducing late payments, businesses will still have to adhere to the reporting. How to increase transparency and accountability without throwing huge amounts of resources at it, is, of course, a difficult question. Any regulatory change demands time, so perhaps an automated approach to payments processing could provide the answer.
Automation – and by that we mean the ability to manage which invoices get paid when and on how regular a basis – can offer businesses an intelligent alternative to manually processed payments. The ability to automate invoice payments not only removes the process burden, it also provides a cloud-based repository for record keeping and easy reporting. This reduces paperwork, increases control of payments and provides improved transparency and compliance. Add-in the ability to include all business card payments and tracking and it makes for a powerful tool for managing business payments.
Streamlining processes with technology
Of course, most businesses will have their own invoice approval process and systems in place. This should never be a problem. Businesses need to adopt a system that can work alongside existing processes and technology, improving and streamlining business payments and automating where it will have the greatest impact.
For companies subject to late payment scrutiny, the ability to manage payments more efficiently can also mean holding onto money for longer, while also paying customers more quickly. It’s about minimising human interaction and adding complexity, finding areas where automation can make a huge difference. Giving businesses greater control and visibility of payments can only help these businesses run better and be more compliant. In that sense, regulatory change should be seen as an opportunity and not a burden.