By: Paul Christensen, CEO at Previse
2021 was a hard year for British businesses. From the UK’s smallest suppliers to its most powerful retailers, none have been infallible to the impact of the ‘perfect storm’ of problems created by Coronavirus, Brexit and supply chain disruption.
The economic impact of the pandemic has shown how precarious the UK’s market is, with financial pressure on small businesses being ramped up by the ongoing supply chain crisis. A critical shortage of labour and resources, combined with rising prices, has led to warnings of a “winter freeze” looming over UK businesses. The need to replace legacy systems with innovative, technology-driven solutions has never been more glaring.
Throughout many industries, digital transformation has been delivered at an unprecedented rate since the onset of the pandemic. From the NHS to SMEs – we have come together to explore new ways of doing things, support one another and, crucially, get the job done. The supply chain shouldn’t be any different.
One thing which every business can do to help build a more resilient supply chain and support the small business economy, is to pay suppliers quickly. Fast payment helps SMEs to plan for the future. It gives them the confidence to invest and to employ more people. It keeps cash moving quickly throughout the chain. So, what steps can large corporate take to ensure that they and their suppliers have a more prosperous 2022?
Let’s make slow payments a thing of the past
In 2022, increasing numbers of suppliers will demand to be paid quickly as fiscal conditions tighten. A demand which, until recently, has all too often gone unheard.
Before the pandemic, late payments to suppliers amounted to over £23bn per year. Additionally, since the pandemic, buyers across many sectors have pushed for longer payment terms, which squeezes suppliers’ cash flow even further. SMEs are the worst hit. SME turnover alone is estimated at a whopping £2.2 trillion annually. From drivers and farmers to beer brewers and bakers – small businesses are the backbone of our economy and will drive our recovery.
Yet, The Federation of Small Businesses found that 62% of small businesses had experienced either an increase in late payments and/or had payments frozen completely as a result of Covid-19. And as unsecured creditors, if their customers are forced to close down, they have very little chance of recovering their invoice values.
This puts the whole supply chain at risk of financial difficulties, which, in turn, has a severe impact on the others that rely on these suppliers. This ‘contagious’ effect of financial distress and potential closures exacerbates the economic hardship faced by British businesses.
Cooperation between large corporates, banks and fintechs will be essential to reducing and ultimately ending the slow and late payments crisis. If businesses work in harmony to pay their suppliers faster, Britain’s economy will thrive. Now is the time to invest in our SMEs and provide security to the 16.6 million Britons they employ.
Digital transformation will drive us forward
Paying invoices on day one isn’t just good for suppliers, it’s good for corporate buyers too. By doing so, businesses can benefit from significant process efficiencies, and contribute to a healthier supply chain. With ESG criteria now sitting firmly at the top of the agenda for businesses across the board, paying suppliers faster demonstrates a real commitment to sustainability and strengthens supply chains at very little cost.
Large corporates can adopt instant invoice payment policies in a way that would also be sustainable long-term for their own cash flow. The technology and processes exist to enable suppliers to access cash immediately without buyers having to speed up their own payment processes.
If 2021 highlighted the need to ‘build back better’, then 2022 will be the year that technology will be used to promote widespread strategic change and sustainable growth. Now is the time to update solutions of the past with new innovations as we seek the green shoots of renewal. Paying suppliers instantly is the single largest contribution any business can make to improve supply chain resilience. Adopting smarter technology will be a part of this.