This friction can have knock-on effects. For example, the Federation of Small Businesses (FSB) claimed in a report entitled The Economic Impact of Poor Payment Practice that 50,000 small businesses go bankrupt every year as a result of late payment.
Our own Friction Index research found that half of businesses admit to paying suppliers late, often due to slow, manual processes. This is a terrible legacy and threat to the UK economy.
Don’t underestimate your potential to drive change
Being a responsible business isn’t only about CSR programmes and environmental credentials. It is also about something more down to earth and achievable: treating your suppliers in a considerate and transparent way and creating a supply chain that is mutually beneficial to all.
It can be easy to feel like the larger companies in the supply chain hold all the power and that it is impossible to change a business relationship from the bottom. However, by holding to a few simple principles, you can help introduce a culture change that will positively reverberate throughout the supply chain.
In addition, it is important not to overlook the smaller companies that you deal with yourself – if you treat supply bosses in a responsible way you will be helping their cash flow and daily operations and in this way, will be contributing to the health of your entire supply chain.
Start as you mean to go on
As with any business relationship, discuss the terms of the agreement at the very start. Make sure you talk about your expectations and the payment terms and each party understands exactly what has been agreed upon. Businesses can take the lead with this when dealing with smaller suppliers and insist upon it when interacting with buyers, to help avoid confrontation down the line through confusion or ambiguity.
Digitise the payment process
Technology exists that can improve supply chain collaboration – adopting e-invoicing for example can revolutionise invoice processing, maximise efficiency, improve cash flow management and can also lay the foundation for simplified, online working capital financing. Digitisation affects the entire dynamic between buyers and suppliers as everything is shared and transparent and suppliers become more like partners.
The fintech industry is evolving to bring banks and e-invoicing providers together, integrating technology so that funding is provided in a “one stop shop”. These developments are making it easier for businesses to access payment more quickly than the agreed terms, when it’s needed. The data is much easier to optimise, move, track and analyse than with paper-based processes and late payment should become a thing of the past.
If large corporate bosses in your supply chain are not currently on board with e-invoicing, you can argue it will bring significant benefits to them too. Suppliers can track the invoice electronically in real-time, which has been proven to reduce inbound calls and emails to account payables teams by 60 per cent, freeing buyers to focus on other business priorities. It also strengthens working relationships as suppliers no longer have to chase or have awkward conversations.
International supply chains
If you are an SME involved in overseas trade, you will no doubt have welcomed the fresh and lucrative opportunities that have opened up over the last 20 years. However, the growth in global supply chains has also generated lots of friction. Friction comes from complexity and regulation and we don’t see that diminishing any time soon.
In fact, the imperative to regulate and control supply chains is only going to get greater as global trade increases. At Tungsten Network, friction is a problem that we’re trying to solve. In particular, the fact that we’re tax compliant in 48 countries – more than any other trading network in the world – means SMEs trading across multiple jurisdictions can be sure of compliancy in each different country, removing the hassle, worry and friction from suppliers.
Creating a healthy and frictionless supply chain where buyers and suppliers work in collaboration to achieve their goals is a noble ambition that should be at the heart of every SME’s agenda. With good communication and smart technology, it is possible to bring companies together to work efficiently and effectively in a truly symbiotic way.
Henning Holter is head of global business development at Tungsten Network Finance
There could be some very awkward conversations businesses are putting off because the supply chain is keen on getting certainty around Brexit. But this is something owners just aren’t able to give.
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