Accounts Payable News^®

Five Day Payment Terms

The economic downturn has precipitated change in many of the ways in which we do business. Over the last two years, keeping a tight control over cash flow has often made the difference between staying afloat and going under. In recognition of this, the Government has launched a series of procurement policy initiatives aimed at keeping the wheels of business turning, particularly in SMEs, which currently represent 60% of the UK workforce.

In late 2008, the Government took the first steps towards creating a more level playing field for public sector suppliers and announced a 10 day payment policy. By the end of May this year 19 out of every 20 invoices to central government sections were being paid within this time. In the March 2010 Budget the Government went one stage further and reduced this down to 5 days – essentially implementing an immediate payment policy.
Government departments are now required to pay 80% of all undisputed invoices within five days, and although this is considerably less than the usual 30 day terms – it is an achievable objective. The key to making this happen, will certainly involve an increase in automation technology. In fact, a further directive has specified that all government departments should explore the option of moving to immediate payment through electronic invoicing for all suppliers.

SMEs Battle Outstanding Invoices

In difficult times it’s often the weakest who suffer, and in business terms that means the small to medium sized enterprises (SMEs). For many the incipient recession has added to what was already a difficult situation.  Sometimes because the wheels of large organisations turn slowly, and sometimes simply through a lack of care – the days sales outstanding (DSO) quite regularly tip into 80 plus.  It’s not hard to see that if you’re a small business, a figure as high as this can easily have disastrous effects on cash flow.  In fact, stagnant cash flow leads to the collapse of a quarter of all the 40,000 business annually.

From May 2008, customers can make payments via the Internet or telephone banking up to a limit of GBP10,000 that will reach the bank account of the beneficiary or payee within two hours. The Faster Payments service will be available 24 hours a day, seven days a week and will cost significantly less than the UK's current same-day, real-time gross settlement system, CHAPS. It is likely that the speed and cost of this new faster payment service will attract payments normally sent via CHAPS or BACS.

The Single Euro Payments Area (SEPA) will allow customers to make non-cash euro payments to any beneficiary located anywhere in the 13-member ‘eurozone’, using a single bank account and a single set of payment instruments. All retail payments in the ‘eurozone’ will thereby become “domestic”, and there will no longer be any differentiation between national and cross border payments within the euro area.