Payment delays by clients are a common issue. This trend of inordinate delays shows no signs of resolution in the near future. This has a disastrous impact on businesses, and small enterprises are already on the edge.
Bureaucratic delays, red-tapism, and complex KYC (know your customer) checks are usual excuses of large companies when it comes to delays in payments. In a recent survey held in the UK, most large organisations admitted to this lapse, but had no deep introspection on how to fix it.
We are noticing that as and when a service provider raises the issue of delays in colony, some companies rake up the issue of service deliverables instead of addressing the payment issue. It is unfair to connect these two as approved invoices must not be exposed to post-diagnostic checks and flimsy excuses.
Holding payments for already approved invoices does not contain any merits. However, client representatives resort to holding payments using the contract governance framework. This unfortunate stand is often driven by payment escalations at the contractor rather than just the merit of performance.
We often wonder about the rationale — are these adverse actions used to tame the service provider? Or as a pretext to payment delays?
It is justifiable for clients to seek corrective actions within the contract governance framework for various remedial measures as well as hold payments for services not delivered or not performed. But it is also fair to expect the client to owe up to their contractual obligation of timely payments.
Clients cannot use delayed payments as a weapon
Lopsided expectations and draconian actions under the guise of contract governance often mar the spirit of the relationship. While the client may opt to take this route, this only snowballs the trust deficit. Such moves by clients to cover up for their payment defaults is unethical.
However, routine delays of three to four weeks delay are presumed by most clients as business as usual. Any escalation by contractors is regarded as unnecessary irritation. How often these contractors are being tossed around by the clients between the procurement for purchase orders (POs), operations for invoice submission, validations, and finance for follow-ups.
More than two-thirds of clients don’t stick to their agreed timelines when it comes to payment obligations. Yet, rarely is this deviation factored in as noncompliance of the contract governance. While clients remain generous in applying penalties and sharp rebukes on performance issues, no introspection is involved when it comes to timely payments.
Heed the spirit of agreements
All contract obligations are binding to maintain its sanctity. It is high time clients realise the infringement of their obligations. They must take corrective actions to honour their commitments as well to do a balancing act while taking on service delivery issues, as often these are interconnected.
Clients must not resort to service audit trails when pushed for payment delays or threaten to seek credit notes or penalty stipulations as the service provider builds pressure for receivables.
The delay in payment to the contractor has a domino effect on the supply chain. Depending on the financial strength of the contractor, such delays usually cascade, and in some cases, the contractor’s employee morale is also demolished by salary delays.
Every contractor plans their working capital with contingencies, but what can the business do when they run out of contingencies? In the current economic situation, finding shareholder financing or banking credit are time-consuming.
It is time for mature actions from both sides while service providers deliver their services in total contract alignment. Clients too must provide for timely payments and apply a logical conclusion on service failings, especially if it is connected to their payment issues.
— Tariq Chauhan is Group CEO at EFS Facilities Services Group.