Thursday, 15 November 2012 11:47

The Prompt Payment Code and the Supply Chain Finance Scheme

The Prompt Payment Code and the Supply Chain Finance Scheme - what's going on?

The current economy is turbulent enough, without seemingly conflicting schemes being launched to help businesses with credit control and late payment.

But in recent weeks, both the Prompt Payment Code and the Supply Chain Finance Scheme have been making headlines for companies with slow-to-pay clients.

 At first glance, both make at least some sense - but they work in almost opposite ways, and the Prompt Payment Code is voluntary anyway, so which is better?

There's only one way to find out...

The Basics

Briefly, here's the idea behind each initiative:

The Prompt Payment Code is a voluntary scheme that requires registered companies to pay on time, in line with agreed terms. It demands clear processes for treating suppliers fairly, and swift resolution of disputes.

The Supply Chain Finance Scheme allows slow-paying customers to issue a promissory note in lieu of payment, which the supplier can borrow against at their bank. The borrowed money must be paid back by the supplier, with interest charged on top.

Each is an attempt to keep companies' cashflow healthy in these troubled economic times - but while the Prompt Payment Code does so by reducing delays in settling invoices, the SCFS embraces slow payment and passes the costs on to the supplier.

Four More Years

What you might not realise is that the Prompt Payment Code celebrates its fourth anniversary in December 2012, yet still only 27 FTSE 100 companies are signed up to the voluntary scheme.

Business minister Michael Fallon is now taking action on that, and has written to all companies in the FTSE 100, and in the FTSE 250, where only five firms are signatories of the Code.

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His warning is clear: register with the Code by the end of 2012, or face being named and shamed in the new year.

"Late payment causes real cashflow problems for entrepreneurs," he says. "It stops them from growing their business - we need to change the culture."

Supply Chain Dominoes

Phil Orford, chief executive of the Forum of Private Business, puts the importance of prompt payments in even more certain terms.

"All too often, we see a 'domino effect' of late payment right down the supply chain," he says. "It decimates cashflow, and forces many firms into administration."

Clearly any initiative to combat this - even if it incurs interest for the supplier - is preferable to job losses and administration.

What We're Doing

As always, we are doing what we can to help British businesses get paid on time, no matter where they are in the supply chain.

Effective credit control processes remain one of the best ways to keep things running smoothly, and to make sure you become aware of late payments as soon as they occur.

Initiatives like the Supply Chain Finance Scheme and the Prompt Payment Code can help when you find yourself facing delays from customers - but it takes two to tango.

We'll be keeping a close eye on these schemes as they develop, and will certainly be interested to see if Mr Fallon follows through with his promise to name and shame non-signatories in early 2013.

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