Smarter Payments e-Report Edition 9
Public Sector Prompt Payment Promise Requires Best Practice Processes
Since the government’s Prompt Payment Code came into play in October 2008, the practice of paying promptly within 30 days or less, has become considered an example of best-in-class Accounts Payable procedures. From the same date, all public sector organisations were expected to pay undisputed invoices to small and medium enterprises within 10 days of receiving them. This was a tall order given that councils and other public sector organisations received no additional resources to help them achieve this goal.
Despite strenuous efforts to meet this target, many public sector bodies have been struggling to do so. However, they have recently been required via a Government directive to pay 80% of all undisputed invoices within 5 days of receipt. In addition, they must explore the option of moving to immediate payment through the deployment of electronic invoicing for all suppliers. The Government is also encouraging all NHS Trusts and local authorities to publish their prompt payment performance data on www.direct.gov.uk.
The Prompt Payment Code states that organisations should:
Pay suppliers on time
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- within the terms agreed at the outset of the contract
- without attempting to change payment terms retrospectively
- without changing practice on length of payment for smaller companies on unreasonable grounds
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Give clear guidance to suppliers
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- providing suppliers with clear and easily accessible guidance on payment procedures
- ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers
- advising them promptly if there is any reason why an invoice will not be paid to the agreed terms
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Encourage good practice
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- by requesting that lead suppliers encourage adoption of the code throughout their own supply chains
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The average council is likely to have in the region of 8,000 live supplier accounts and some have many more, so in order to achieve these kinds of tough goals, they will have to put in place some rigorous procedures to have a hope of achieving the Government’s new proposal. In addition, departments other than just AP within public sector organisations will also need to play their part to ensure that they make all necessary invoice authorisations quickly. It really is a team effort because if the invoice sits on the approver’s desk for even a few days the payment target is likely to be missed before the AP team even see the invoice. It is also up to public sector bodies to ensure that their suppliers provide invoices in a way that allows them to be processed quickly.
While AP teams across the public sector battle to meet the new 5-day limit for invoice payments, there is no doubt that it will put local authorities and other public sector organisations at a greater risk than ever of making duplicate payments and other errors. The decree from the government comes at a time when the public sector is already attempting to cut costs by 25% following the recent budget. Therefore, as staff numbers are likely to decrease, the burden of workload will increase, putting the public sector at risk from unscrupulous suppliers as well as from genuine errors.
It is here that using accounts payable audit software, like AP Forensics® from
FISCAL Technologies, can help. Such software solutions can protect public sector organisations from the risk of accounts payable errors – such as duplicate payments – and fraud.
The presence of duplicate suppliers and errors on a master supplier file is one of the main causes of supplier fraud and making overpayments in accounts payable departments. For this reason, FISCAL recently made a series of significant changes to its Duplicate Supplier Finder™ module, providing an even greater emphasis on helping AP teams to combat fraud.
Using a software approach towards solving the problem of accounts payable errors and fraud can be effective, delivering net savings both in time and money because it prevents errors from happening. In turn, this eliminates the need to track down past duplicate payments and deal with time-consuming credit notes and other recovery admin.
As the true ramifications of the public sector cost-cutting exercise becomes clear over the coming months many local authorities and other public sector bodies will struggle with the burden of new initiatives such as 5-day payment of invoices. It is at times like this that organisations that have already put in place best-in-class processes and procedures will come into their own. Those that haven’t should look to learn from them, reviewing their own current procedures and systematically working through a programme of changes on a one-by-one basis.
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