Last time, we discussed the new regulation that makes companies of a bigger (£36m turnover and up/250 employees-plus) size have to publish their payment practices.

Plainly, the government is pursuing this to help the SME or even small trader who says they are being squeezed too hard by the larger companies refusing to pay up on time – latest figures show on average, British SMEs are owed £26.3bn in overdue payment. Regardless of your views about this, this is the new reality big UK companies have to deal with. So what are the practical ways to meet the structures of the legislation?

Clearly, information on your current payment practices must be captured. That could be a first for some organisations, and implies manual effort and/or changes in the way internal reporting data generated from ERP is routed and stored.

This is where previous work on digital invoicing will pay off, of course. If you’re not capturing invoices electronically, then this has to be yet another reason to stop being a laggard; easy access to this data will pay you huge benefits not just as regards the Payments database work you will have to do, but feeding into many other vital Finance and business processes, too.

A number of processes get affected

Existing digital systems may, however, have to be beefed up. In-house Procure to Pay (P2P) solutions and finance Destination Management Systems (DMS) will need to provide invoice presentation date information to other systems, as well as add further data for reporting analysis. FDs and CIOs will probably want to start thinking about enhanced reporting tools that will be able to pull together all this information, which is clearly an opportunity for the content management world.

Contract management also comes in, as contracts will need to be reviewed to confirm qualifying jurisdictions and special payment terms that may have a bearing on the reported results. That’s because, if you recall, the guidance states that you need to open up on your standard payment terms, which must include the “standard contractual length of time for payment of invoices, the maximum contractual payment period and any changes to the standard payment terms in the reporting period, and how suppliers have been notified or consulted on these changes”. Certain contracts with unusual payment terms (stage payments) may artificially skew the results, and the regulator will want to have the context of all this to ensure they fully understand what’s going on.

All this payments data will be published publically on a league table. There’s good and bad aspects to that. On the one hand, there’s a danger of a name and shame list that could negatively affect a company’s reputation for good payment practices, which may in turn impact share price and customer engagement.

However I think we should flip that on its head and consider this as a positive. The canny CFO and CEO will seek to use the table to entice suppliers with your excellent payment records to enhance and extend your supplier choice, driving down costs and expanding business opportunity and competitiveness. And if you work in markets where a visible commitment to the SME is seen as a value, that could really help your cause and PR.

Reasons to get busy with this

There are ways round this. You may be able to evade one of the three criteria of revenue size or employee headcount. Some Finance Directors may choose to reduce balance sheet value or move more revenue to overseas offices, for instance.

I think that would be regrettable. After all it’s time that the practice of pushing the 90-day limit to save cash has to end, and a more digital and friction free business supply chain could really help all of us in UK business.

I also believe that it’s plain good business to be as good at having a grip on your accounts receivable as on your debtor days – and this payment issue is exactly where the two cross.

Let’s seize the opportunity to do business better, more transparently, more digitally and more efficiently – and the rewards of good publicity and possible interest from the innovative small firm looking for a partner that will see you are as an honest broker and come to you, will offer recompense for the effort needed.

So good luck, and let’s get on to this Payments issue.

Howard Frear

The author is Sales and Marketing Director at EASY SOFTWARE UK