Weekly blog by Philip King, CEO of the ICM -'Maintaining forward momentum'

 

I've received some criticism of my comment about payment terms quoted in the Telegraph last Sunday. Coverage of the Prompt Payment Code (PPC) included my assertion that the drive by many for a prescriptive maximum 30 days credit terms is misguided. 

I make no apology for my comments and stand by them; my position is clear. Payment terms are one aspect of a trading relationship and, as such, should be open to negotiation in the same way as other factors such as price, quality, service levels, delivery arrangements etc already are. If maximum payment terms are stipulated, then one differentiator is removed. 

I remember in a previous role as Credit Manager of a computer manufacturer using very long payment terms as a carrot to persuade retailers to take obsolete printers that would otherwise have been discarded and destroyed. Offering longer payment terms can be a way of gaining business or obtaining a better price, while shorter terms can help mitigate against higher risk or compensate where competitive pressure demands lower prices.

By way of example, the Sunday Times last weekend reported that Canon and Nikon had offered favourable credit terms to Jessops in their attempts to keep it in business and maintain their vital shop window into the British retail market. I concede that their efforts spectacularly failed but, if maximum payment terms were introduced, they would not even have been able to try.

The day payment terms can't be negotiated between a supplier and customer is the day that a nail is hammered into the coffin of free market trading. I'm not for a minute suggesting that it is acceptable for large customers to exploit their suppliers, and especially smaller ones, by imposing unreasonable payment terms. That is unacceptable, just as refusing to pay a reasonable price for the products being purchased would be unacceptable.

The Prompt Payment Code was intended to drive a change in culture where good practice and paying on time, and to the agreed terms, becomes the norm rather than the exception. It is intended to get us to the point where suppliers have certainty about when to expect payment. It's great to see the increased momentum and visibility, and the increasing number of organisations signing up to the Code, but let's make sure that the debate continues to move us forwards and not back.

To become a signatory visit http://promptpaymentcode.org.uk

To read previous blogs visit http://www.icm.org.uk/home/ceos-blog