Payment terms – and more importantly – the actual making of that payment, are where the rubber meets the road in sustainable business.
Payment on 30 days or less* is really a litmus test as to whether your company is behaving responsibly.
The inability of sustainability folks in companies to have any impact on this also shows how seriously CFOs and CPOs take them, and the company’s statements of values or principles.
The debate, and the practice, often brings to mind the old Groucho Marx quote: “Those are my principles, and if you don’t like them… well, I have others.”
I sense this area is going to become one where companies will HAVE to take action, very belatedly, as pressure grows.
I know 30 days is not always needed. I work with a large retailer who got in trouble for 90 day payment terms years ago.
At the time, despite media spin, those terms actually only applied to, and were agreed with, huge suppliers who were fine with them.
In these cases, it seems to me that’s OK. That same company today though, requires one to push one’s contacts in that business hard, to make themselves unpopular with finance colleagues to get payments made on 60 days or less.
Thinking of our business, Innovation Forum, at around a million pounds a year turnover we’re not even a minnow to these large companies. Perhaps an amoeba in terms of size. So perhaps we do, in some ways, represent the classic SME supplier to many of them.
We’ve found many large companies, who sign up to come to our sustainability conferences or buy our training, contract publishing, research or advisory services, can take up to 150 days to pay a £1000 invoice unless we push them hard. Many of these, of course, are high up in indices like the Dow Jones Sustainability Index, or have a good reputation in the sustainability world, for being progressive. Those notions don’t reach the CFO and the procurement bosses though, in many cases.
In our case, we’re lucky. We have thousands of small transactions per year with these companies, via credit cards, and more than half our income can be billed in advance and paid to us. Others are not so lucky. A good friend of mine, who runs a £2 million turnover company, is currently owed more than £400,000 by companies who are 90 days or more late in paying. Luckily, he is used to it, and will survive.
Others are not so fortunate, particularly in emerging markets, where the odd bridging loan or short term finance deal is harder to come by, costs a fortune, or simply does not exist.
Since I started running small businesses in the sustainability world, then called CSR, back in 2001, this issue has been on the agenda. I do feel now though, that companies have pushed it too far. Many have become too ‘clever’, Ryanair style, at making life difficult for customers for unethical financial reasons. One method we see a lot is not accepting an invoice for 30-60 days, using lots of dumb forms as a barrier and mysterious incomprehensible emails about ‘procurement systems’ which involve processes that need ‘approval’ and take 60 days to work.
With the news this week about Tesco, and the UK’s Serious Fraud Office finally seeming to grow a pair, and look into their (hopefully now defunct) business practices with suppliers, I can’t help feel like uttering that classic line of “this is an issue whose time has come” for something to be done about it.
Some will be rubbing their hands at this opportunity for more certification. I can see an “ethical payer” badge being developed by someone for companies to sign up, be ‘audited’ against, and pay for. That won’t work. It’s failed in most other areas of ethics to go mainstream, and it won’t work here.
Change in these sorts of areas only really happens when a few scalps are held up (see anti-corruption, at least in the US, as an example) and the media does their job and backs the right thing. Then, and only then, do we see a cultural change take hold, as the most egregious and unethical practices somehow become “not the way we do things around here.”
I raise a glass to that year (it won’t be a ‘day’) and fervently hope that will be 2016, or at least, 2017.
*I also would accept there are times that cashflow needs to be managed by small companies, and others, and so compromises need to, and can be reached, in consultation with the supplier. If that’s handled in a way that keeps everyone happy, that’s fine.