We’ve seen a significant rise in inflation over the past year, leading to increasing market uncertainty and ultimately causing costs to spiral for many businesses. Meanwhile, the economy is recovering from a series of black swan events over recent years – from Brexit to global conflict and supply shortages.

These issues have impacted businesses’ bottom lines and exacerbated a global cash flow crisis. Not only is this reducing liquidity and creating financial instability, but it’s also preventing companies making timely payments to suppliers and maintaining normal business activities.

(Paid) 22 days later

Many firms are now struggling to pay suppliers in good time. Last year, more than a third (36%) of UK businesses said they had already extended payment terms for suppliers – and this is now getting worse. More than half (52%) of businesses have paid suppliers later compared to 12 months ago due to higher costs and market uncertainty – with an average delay of 22 days. In a fifth (21%) of cases, late-paying companies are paying suppliers a month later or more.

However, late payments themselves will add more fuel to the fire when it comes to uncertainty and cashflow challenges. According to the annual European Payment Report, late payments cost UK businesses £27 billion a year, which is stalling cash flow and stifling innovation. Furthermore, delays can also irreparably damage relationships with suppliers, with more than half (59%) of UK businesses reporting that suppliers had ended relationships with them due to repeated late payments.

In extreme cases, late payments can even put suppliers out of business. The Federation of Small Businesses claims 50,000 UK business closures could be avoided each year if late payments had been made at the right time and as promised.

Often, late payments are seen as a symptom of a company having little or no control over their critical spend cycle. This is damaging in the long term, and as the world switches from a buyer to a supplier-led market, businesses need to be able to secure and keep contracts with their top suppliers. If they have poor credit management and pay late, suppliers simply won’t want to know them. Instead, the focus should be on paying at the right time for both parties for a mutual benefit.

Don’t get bit by a lack of visibility

Businesses must act to ensure payments are made in a way that benefits both the buyer and supplier. However, there are a number of significant technological and operational challenges preventing companies from addressing payment delays effectively.

UK businesses have a severe lack of visibility into payments. Without this visibility, businesses lose the ability to track and proactively manage how they pay their suppliers. Meanwhile, there’s also a disconnect between procurement and finance teams – with this making it even harder to understand if suppliers are paid on time, let alone if they are paid late.

Businesses must act now to gain visibility into the entire spend cycle. With late payments highly damaging for managing cash flow, organisations need much greater control over spend. This will ensure companies can inject cash into the supply chain when needed, while offering the benefits of higher levels of automation, lower fraud risks, and lower costs.

Without the ability to understand and control when suppliers have been paid, firms also won’t be able to work with suppliers to make strategic payment decisions that incentivise supplier performance. For example, this could be early payments, which opens up cashflow and builds supplier trust, or payments done on a key milestone basis to encourage good performance and reduce risk of supplier failure.

Now’s not the time to become a ‘late payment zombie’

Sticky inflation, ongoing disruption and supply shortages look set to rumble on into 2024. As such, in-demand suppliers will become increasingly selective about who they work with, prioritising their 'customers of choice'. Paying on time is vital to building trust and securing strategic sources of supply, so, businesses must move from reactive to strategic payments that will reduce risk while driving long-term savings.

With technology such as cloud-based procurement platforms, companies can generate a single view of their supplier payment landscape and automate the payment process from end to end. This will ensure collaboration between accounts payable, the business, and suppliers. With this bird's eye view, firms can better understand and control their spend. They can also use this single source of truth to automate manual payment processes to drive same-day approvals, eliminating late payments altogether.

Ultimately, the firms that enable strategic payments now will start reaping the benefits immediately. This will ensure they can build better ties with suppliers, working together to identify cost savings and find new ways to mitigate risk into the future.