The march to get bigger companies and Government departments to pay suppliers to terms continues to be big news in the UK’s credit industry. It’s a crusade led by the Chartered Institute of Credit Management who we think is the most pro-active professional credit organisation in the world. This organisation not only campaigns and educates on good credit management but it influences Government policy on the subject of late payment and is listened to and respected in its conclusions.
So, an article caught our eye in which the global brand of Rolls Royce had to fess up to dropping the ball on its own approach to paying suppliers on time. The report was spotted by our CEO, Claire Sandbrook, who is herself a former Vice Chair of the revered CICM.
In the article (see http://bit.ly/2MtEfdF), Rolls-Royce has said it was "disappointing" that the global engineering giant had been suspended from the Government’s Prompt Payment Code after it had failed to pay at least 95 per cent of its supplier invoices within 60 days.
The UK headquartered company said that recent changes made to the assessment criteria for the Prompt Payment Code, administered by the Chartered Institute of Credit Management (CICM), resulted in its suspension. In a statement, Rolls-Royce said the finding of non-compliance was “disappointing”. The company then went on to explain how it is balancing a complex process of 500,000 payments a year within which it has criteria to support smaller suppliers. But pressure from larger suppliers had led to the company having to manage its cashflow which in turn meant slippage on its compliance to the Prompt Payment Code.
There is a lesson here for all businesses – managing credit in and out of a business is an art – and the saying “turnover is vanity and cashflow is sanity” is never truer than it is today.
Rolls Royce will no doubt address the imbalance in its cashflow to bring itself within the Prompt Payment Code but not every business has the support of a full-time credit team. We encourage business owners to look at a list of their suppliers on a regular basis (weekly is a good starting point), along with a list of their debtors (try keeping a daily task in place to check your cash) – and to use the analogy of our CEO, think of the reviews as if you were weeding a garden. If you pull out the weeds (analogous to your late paying customers) and pull in that cash, then you keep the garden tidy and thriving. Leave suppliers and debtors alone and the garden gets untidy and it’s a lot of work to pull it back into shape. And of course, where you can, don’t offer credit, seek payment upfront as part of your delivery system for the goods and or services you are supplying.
There is only one Rolls Royce brand in the world – but you can mimic the idea of being a Rolls Royce business by looking after your suppliers and customers so they all know where they stand when it comes to being paid or paying you. Stay tidy out there!
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