How can SMEs benefit from new payment regulations?

And what can large companies do to bypass them?

Our recent blog post highlighted some of the changes which will be introduced next month in the UK, making it a requirement for businesses of a certain size and turnover to publicize their payment practices and performances. This article discusses some of the benefits of these new regulations to SMEs.

Ultimately, these new regulations should be advantageous to SMEs by providing them with:

• Earlier payments which may lead to an improvement in cash flow so that they can operate in a more financially liquid way; be it paying their own suppliers on time or investing in growth opportunities.
• An awareness of their customer’s payment terms and recent payment history which will allow them to make an informed decision on whether to do business with them or planning on whether they have adequate resources available to cope with any delay in receiving payment.
• The possible elimination or reduction in SMEs having to pay to be on their customer’s preferred supplier’s lists. In 2014, Premier Foods were publicly shamed when it was discovered that they were asking their suppliers to “pay to stay” on their preferred suppliers list, with the threat of removal if they did not do so. The subsequent public backlash against Premier Foods forced them to backtrack on their initial scheme.
• An understanding of their larger customers' payment disputes processes, which should assist in the resolution of any dispute over payment.

However, before SMEs crack open the champagne, they should be aware that, as with any statutory requirement, there will be some companies looking to exploit any loopholes that may exist in this law. For example, the regulations state that qualifying companies must report on the number of days taken to make payments, from receipt of the invoice. Therefore, companies could choose to exploit this by claiming they have not received invoices, with the overall aim being to delay payment but still providing a positive outlook on the reporting of their payment practices. According to The Federation of Small Businesses (FSB), 31% of companies have claimed that payment was delayed as the invoice was not received. One way for SMEs to overcome the possible use of this loophole by their customers is to use software, such as Zetadocs for NAV, to send their invoices electronically.

Zetadocs Delivery integrates seamlessly with Microsoft Dynamics NAV and instantly delivers invoices by email, with timestamped logs that give added reassurance that the invoice has been delivered to the customer. As qualifying companies will need to report publicly on whether they accept e-invoicing, this should provide SMEs with their customers' email details for invoices. This will enable SMEs to send invoices electronically to the correct invoice contact, reducing the possible use of this loophole and a subsequent delay in payment.

The Department for Business, Energy & Industrial Strategy noted how software can play an important role with regards to the payment process. They said “invoice document management systems software allows documents to be electronically exchanged, and means a more streamlined process with less manual intervention. This can make the process of payment faster for the supplier.”

These new regulations are a welcome boost to SMEs. However, only if qualifying companies adopt them sincerely will they provide a fair, honest and harmonious system, for the benefit of all parties involved.

Find out more about how Zetadocs Delivery can help you take advantage of these benefits. Email sales@equisys.com or call +44 (0) 207 203 4001.