Lewis Mitchell, Oxygen’s Director of Sales and Commercial, shares his thoughts on the recent Small Business Commissioner consultation conducted by the Department for Business, Innovation and Skills. The consultation, published on 26th July, focuses predominantly upon the role that a Small Business Commissioner could play in supporting SMEs, alongside the potential purchase-to-pay (P2P) culture change required in the future. Here’s what Lewis has to say…

Oxygen greatly welcomes the measures set out in the Late Payment of Commercial Debts Act, as well as Regulation 113 of the Public Contracts Regulations. The transparency and liability reporting requirements provided for in Regulation 113 are without question a positive move, although we note that the production of this reporting suite will, for those public sector bodies that are not already Oxygen clients, be a manually intensive exercise, at least at first.

Targeting the cause of late payment
An effective Early Payment Programme addresses the root cause of late payment. It introduces the missing incentive to drive efficiency into the buyer’s P2P processes, improving compliance with prompt payment legislation. It also goes beyond that to deliver the capacity to pay suppliers early and engages with the supply base to generate, in an automated, transparent and accountable manner, Early Payment Rebates for the buyer corresponding to the liquidity and associated benefits actually delivered to suppliers.

The procurement tail
Many buyers, due to the characteristics of their spend with SMEs (typified by a large number of small suppliers, frequently running into the thousands, with a low spend per supplier and often low average invoice value), find it uneconomical to engage with this segment of the supply base.

This can often mean that SMEs are side-lined in any supplier engagement programme. For example, our experience of early payment offerings, which can provide liquidity from a non-bank source and improved process efficiency for the supplier (just as for the buyer), are often targeted only at VIP and Tier 1 suppliers. While Oxygen programmes have the ability to penetrate much deeper into the supplier “tail”, this is far from the norm.

Failure to claim late payment charges
A number of potential measures are available to address the consistent failure of suppliers to claim late payment charges effectively, and to turn the application of these legal rights into a routine process, rather than a last resort that represents a nail in the coffin of a failed supplier/ buyer relationship, viewed almost comparably to a lawsuit. These measures could be viewed on a scale from a simple obligation for the buyer to calculate the value of late payment charges on the one hand, through the requirement for buyers to publish and accrue for any such unpaid charges, to a need at the other end of the scale for the buyer to pay all late payment charges automatically.

As is often the case, a change in culture may be best effected by public sector buyers leading by example.

The question for the minister is how far down this scale it is appropriate to go and how quickly the desired culture change is required.

For more information or to discuss any of the points raised in this article please contact Lewis at lewis.mitchell@oxygen-finance.com or visit the Oxygen Finance website.