Many councils and public sector organisations have turned to early payment solutions to be able to give their supply chain access to advance payment, improve supplier working capital and ultimately their ability to invest. This urgency reflects the recent statement from the UK’s Small Business Commissioner that, when considering both public and private sector buyers, “currently, £23.4 billion worth of late invoices are owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.”
However, in addition to the social responsibility benefits an accelerated payment programme can bring, especially for smaller suppliers for whom access to finance can be difficult, it also provides the buying organization with a new, reliable, incremental revenue stream that can be very attractive.
To understand the impact this can have, we spoke to representatives from Essex County Council and Halton Borough Council as they explained their reasons for developing an early payment programme.
But we begin with Oxygen Finance’s CEO, Ben Jackson, as he outlines how Oxygen’s early payment discount scheme works: “Our early payment solution enables buyers to pay invoices early and automatically deduct a discount”.
“The discount provided by the supplier, is calculated according to a sliding scale. The scale goes from payment on day 30, which attracts no discount at all, to payment on the day an invoice is received, for which the maximum discount is applied.”
I asked Ben to give more detail on the level of discount required: “For suppliers, the discount is usually less than they’d expect. Suppliers can get their invoices paid on day 10 – or 20 days earlier than standard payment terms – in exchange for 1% of the contracted value. That’s just £10 out of every £1,000, and they will only need to give that discount if they are paid on day 10. That’s instant, increased liquidity without the need for loans or additional financing.”
“Nevertheless, even though we might only be talking about thirty pounds on a typical invoice, in a world where public sector organisations are spending millions on private procurement each day the aggregate value of those rebates to the public purse can be very substantial. It’s the ideal way for councils to make their balance sheet work for them, and with our FreePay solution we are also helping councils across the country pay over 3,000 small and micro businesses early for free, ” Ben added.
With the income available being so considerable (Croydon Council has already raised £1.2m in rebates since their programme began) it’s unsurprising that the number of councils offering early payment programmes continues to rise.
“Over the last few years, the government grant that we received has significantly been reduced”, explains Eve Turkington, Lead Supplier Incentive Programme Officer for Halton Borough Council.
“We’ve implemented an early payment programme, so that we can generate an income. This helps with suppliers with their cash flow, but also it’s helping Halton Borough Council generate an income stream that will be very useful to safeguard frontline services,” Eve explained.
It’s a win-win model that provides significant benefits for both buyer and seller alike. Essex County Council has also introduced their own early payment programme in conjunction with Oxygen Finance. Nicole Wood, Director of Finance and Procurement explains how it works: “Our Accelerate programme gives suppliers the option to be paid more quickly than our standard 30-day terms in exchange for a small rebate.”
“Through better technology and digitization of our processes, we’re going to be able to make the payments quicker. We will take a rebate, which will be pro rata to how quickly we do that. Suppliers get improved cashflow and they’ll spend less time chasing round payment of invoices. It also helps us as we digitise and improve our processes in the back office – and the punch line for us is also we get to reinvest that money back into frontline services,” added Nicole.
Ultimately, early payment programmes offer public organisations a highly attractive income on their working capital without increasing risk, and an innovative new source of funding that would otherwise be covered by internal loan funds, internal cash reserves or internal borrowing to support the delivery of local services.