Paying suppliers within agreed terms is increasingly important, with prompt payment now a requisite for bidding on many public sector contracts. However, the proportion of ‘late’ payment invoices increased in 2022. A true e-invoicing solution such as Causeway Tradex can help streamline the process and ensure compliance with the Prompt Payment Code.
Analysis from Creditsafe has revealed that in 2022 more than half (52.9%) of all invoices sent to construction businesses were paid late, an increase of 13% compared with the previous year. For signatories of the Prompt Payment Code this is a serious reputational concern, which may impact future bids for work. In addition, since April 2022 the Government has required businesses bidding on major public contracts (above £5 million) to be able to prove that 95% of invoices are paid within 60 days.
For suppliers, late payment can have serious implications for the business. Where cashflow is being squeezed by cost increases, delays in receiving payment can mean the company needs to take steps to cut overheads, such as letting staff go, and may even risk insolvency.
There are a number of reasons why payment may be delayed. An invoice could be missed, accidently deleted or sent to the wrong person. It may be missing a purchase order number when it is submitted, or information may have been keyed in incorrectly. Any of these issues may not be identified immediately, resulting in a delay in solving the problem or requesting resubmission from the supplier. However, the payment clock keeps running and invoices can quickly become overdue.
How can this be solved?
An effective way to improve payment speed is to adopt a true e-invoicing system such as Causeway Tradex, which allows the manual processing of paper to be minimised, if not eliminated, on both sides of the payment process.
With Causeway Tradex, all suppliers submit their invoices through a dedicated portal. All invoices then undergo an automated validation process that ensures it is an HMRC-compliant invoice, checks it is not a duplicate and confirms it contains a valid purchase order (PO) number and that the details match the PO information. This means only invoices that are ready to be paid are delivered to the accounts payable team, improving straight-through processing rates.
For invoices that do not meet the requirements, the supplier is automatically notified and given the reason for the return. At this point they are given the option to edit and resubmit, removing the need to credit and re-issue. This automated validation, only possible with a true e-invoicing solution, immediately delivers up to an 80% time saving for the accounts payable team.
As part of the Duty to Report on Payment Practices and Performance process, the Government publishes data on the performance of large businesses across the UK. From these figures, we know that a third of the top main contractors on the quickest payers list use Causeway Tradex to improve prompt payment, and 60% of them are in the top 15, including Morgan Sindall.
In fact, Morgan Sindall has been using Causeway Tradex for over 20 years to reduce wasted time and speed up the payment of invoices. In the latest reports submitted to the Government, Morgan Sindall was shown to pay 99% of its invoices within 60 days and on average pays its invoices within just 24 days.
While the Prompt Payment Code is entirely voluntary, it is clear that reliably swift payment will only become more important for construction businesses. This is not only due to the need to meet government targets but also to support suppliers and demonstrate a responsible approach to supply chain relationships. As a true e-invoicing solution, Causeway Tradex can help eliminate lost invoices and manual data entry and streamline the payment of invoices.
Click here to learn more about how Causeway Tradex can help with Prompt Payment Code compliance.