What Small Business, Enterprise and Employment Bill means for UK’s public sector
Augudt 25, 2015: Everyone has a stake in the efficiency of local and central government, we all pay taxes. And I for one, dislike paying for someone to process paper invoices. Especially, as there is a better and simpler way of doing this – and has been for some time. Likewise, to enable growth and support suppliers, prompt payment targets have been introduced. On the whole, these targets are being met and releasing capital back into the economy. Yet, in most public sector bodies, in order to achieve this, simply more people are now processing the invoices. And this is seen as success by most senior managers in the public sector. Targets are hit and taxes go up, so everyone is happy.
But things can change and must change. Hidden within the details of the last Bill (Small Business, Enterprise & Employment Bill, or SBEE) to gain Royal Assent in March was the key to changing the paper based status quo. It has now been officially acknowledged that processing electronic invoices, or e-invoicing, is the way forward for the public sector. Something our European counterparts have been doing for several years. Not only will this save time and release resources from the back-office to more public facing services, it will also enable more efficient cash management within government.
However, in a typically English way, e-Invoicing needs to be pushed by the supplier rather than mandated by the public sector body. So why bother?
Quite simply, as a supplier and tax payer, submitting a real or structured — a structured invoice is one that’s not a PDF or paper but computer readable — e-invoice is better for you. It will get approved quicker, get paid on time and make you easier to buy from. The all-important stickiness that locks in a customer for the long term.
With the Royal Assent of the SBEE Bill, from May 2017 or earlier (May 2017 is the European Commission deadline whilst the government and bodies like the UK National e-Invoicing Forum (UKNeF) are pushing for an earlier date in England), no public sector body can refuse to receive a real e-Invoice from you. Finally, you can start to invoice every customer electronically without hitting real barriers. The more e-invoicing into the public sector, the more we all save as tax payers. One day, it may even become mandatory – you never know.
The SBEE Bill also contains other hidden gems, such as Prompt Payment down the supply chain and Invoice Financing.
The government has finally made an attack on the late payment culture within big business. Now I can hear you think “the worst culprit is the government itself”, and this is in part true. But over the past three years, great strides have been made by local government, with around 90% of undisputed invoices being paid on time, sometimes even paid early! Unfortunately, central government still fails to meet its targets due to complexities down its supply chain, to contractors and sub-contractors and so on. With the Royal Assent of the SBEE Bill, things are set to change.
Alongside the provision in the Bill for government to pay invoices within 30 days, is the need for primary contractors to also pay within 30 days. Likewise, this ripples down the supply chain, unlocking capital at every stage. But there is a catch; the invoice will be paid no later than a period of 30 days from the date on which the purchaser has determined that the invoice is valid and undisputed. So getting paid is totally in the hands of the supplier because the key words here are “valid” and “undisputed”. You need to get the invoice in quickly, ensure it has the right content and remove all risk of dispute. And the best way to do this is electronically via e-Invoicing.
The challenge will come from how the primary contractors respond to this. The right solution is to adopt open e-Invoicing channels, so that sub-contractors can send invoices in electronically without risk. So, the real opportunity is to link these new payment targets with smarter payment methods. For example, if the prime contractor could process validate and approve an invoice within 4 days, they could offer:
* dynamic discounts to suppliers for early payment reducing the overall contract cost
* or pay the smaller supplier via virtual credit cards to extend day payable and reduce internal complexities
Interestingly, the ripple of cash down the supply chain makes other finance initiatives such as the Bank Payment Obligation (a new contractual term against which the supplier can get bank finance based on a guarantee of payment by the buyer subject to the terms being met) more valuable. It should also make invoice financing more attractive based on assured payment. If only the government terms could become a payment guarantee, now that would be exciting!
Stephen Carter is head of UK E-invoicing Centre of Excellence, Basware