the thought gang

an attempted place

Month: April, 2014

Every little helps..

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So this is something I happened upon in a professional capacity. It’s not the first. The email reads thus:

Halton Borough Councils payment terms are strictly 30 days unless there is a pre-existing contract in place stating otherwise, however, if you would prefer earlier settlement of your invoices then please read the attached flyer informing you of our Early Payment Scheme.

If you decide to join our Early Payment Scheme your invoices will be sent to The Early Payment Team where they will be given a premium treatment, your invoices will be fast tracked through the authorisation stage, payment made within 5days of the tax date on your invoice in return for a 2% deduction for accelerated payment.

One of the things I learned, early on, in accountancy school was that prompt payment discounts are a very expensive source of finance. That is to say, the effective cost (in APR terms) is vastly more than, say, an overdraft. That’s not to suggest they are never the right way to go, just that if you’re offering one then you have at least one of a selection of problems.

Post ‘austerity’, it appears that some of our public bodies have decided to try and save some money by allowing their suppliers to ‘benefit’ from this expensive financing option. This gives those suppliers an escape from the ever-lengthy payment processes that the public sector is so fond of. To this council’s claim that their usual payment terms are 30 days, I merely offer the words ‘yeah’ and ‘lols’.

Is this smart commercial thinking by said public sector? I say no. I say it’s organs of our state, for whom cashflow really needn’t ever be a problem, exploiting those suppliers who cannot afford to wait until the council can be bothered getting an invoice paid. Any large or sophisticated supplier will reject the scheme out of hand, leaving it only ‘attractive’ to those with restricted means.

Note also that this scheme is, as those offered from the client-side invariably are, a discount on the total invoice value. Thus it’s particularly harsh on lower margin businesses. If you operate at 10% margin then 2% of your invoice is 20% of your profit.

The Department for Innovation and Skills has a Prompt Payment Code, a scheme which is about “encouraging and promoting best practice between organisations and their suppliers”. Halton Council need not apply. Small businesses who supply them should be paid as quickly as possible, and shouldn’t have to sacrifice a large chunk of their margin for the privilege.

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Aside..

If tax must be evaded to avoid poverty, then what’s the tax doing there in the first place?