Would the behaviours of
big business change if they were forced to report on how they paid their
suppliers? Well we don’t have very long to find out as in 2016 new regulation
comes into force which will require all quoted companies and LLP’s to do
exactly that.
Over the last year there
have been a number of high profile cases where big business has been accused of
taking up the role of classroom bully. Mondelez has been taken to task, as well
as Mars, Kellogg, Heinz, InBev and Tesco amongst others and their favourite
practices does seem to be the extending of payment terms. Pre-crash 2008 there
doesn’t seem to have been too much reporting on the subject and it would appear
that while pushing out terms was initially used to ensure continued existence during
that rocky period it has since turned into a valuable cash cow at a time of
limited growth and diminishing profits. There is also a push to follow the pack,
driven by the demands of shareholders and analysts. These businesses are vastly
competitive and cannot afford to allow rivals to steal a march; especially one
as tangible as this when pushing out terms can offer potentially tens or
hundreds of millions of pounds to an organisations cash flow.
I am pretty sure that
part of the reason organisations are able to do this is that they are mainly
geared up adapt and react to the demands of their consumer. As it stands there
is little information that is presented to the consumer that allows them to
make an informed choice about whether they buy based on a firm’s payment
processes, and as such not much that stops them in following this route.
I can however see this becoming
more and more of a customer issue. We have already seen over the last year in
the UK that Starbucks has been forced to change tact on corporation tax, based
largely on the backlash from consumers. No one would have wanted press like
that.
Customers put a large
amount of faith in the organisations they choose to buy from and expect a
degree of business integrity, ethical and social standards that they may not
have considered 10 or 15 years ago. When a company is not deemed to have hit
these standards in the eyes of the customer they don’t react well (recent examples
such as “horse gate” spring to mind) and given the rise of social media and the
transparency of information what may have been one person’s gripe in years gone
by may now be a topic of interest to the masses.
This legislation change
may well push the payment processes of organisations into the sphere of
interest of the consumer. New information will be readily available to an attentive
press corps to whom it should be no trouble to report on industry comparisons
and the best / worst practices of big business. It is easy to see how one well-placed
article might spark curiosity in the subject.
So will behaviours
change? Well I have discussed before how focus on such a singular element of
the working capital equation as payment terms is probably not effective in the
short or long term and hopefully businesses start to agree. I would like to
think that this legislation will act as an impetus to change as firms begin to
see the negative PR risk from simply extending terms.
Procurement can take a
lead in this area, helping to improve overall working capital through a collaborative
supplier management approach. Business relationships need not be so one sided
and the negative risks associated with them being so will come back to bite in
this new world of transparency.
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