Outcomes of the invoices outcry

In the tumultuous days of autumn 2008, the government launched a welter of policies aimed at countering the effects of the coming recession. The impact of many is debated – but on one promise, at least, government says it has delivered. As of January 2010, all major spending Whitehall departments were reporting that well over 90 per cent of invoices were being paid within 10 days. In some cases, this involved dramatic improvements: the Department for Environment, Food and Rural Affairs (Defra) went from paying just 33 per cent of suppliers within 10 days in November 2008 to a rate of 99.95 per cent in November 2009. So how did the departments do it; and, since they are doing it, why are there still grumblings from business groups that government is failing to pay on time?

 

In October 2008, Gordon Brown said that all small and medium-sized enterprises (SMEs) – a group easily damaged by late payment – supplying central government would be paid within ten days of invoicing. Newly appointed business secretary Lord Mandelson later launched the Prompt Payment Code – a cross-sector initiative run with the Institute for Credit Management and a variety of business groups – and got central departments to sign up, ensuring that the commitment covered all invoices, not just those from SMEs. Thanks to a series of parliamentary questions by Liberal Democrat MP Jenny Willott, it’s now possible to compare the performance of the major spending departments in meeting that target.

 

Many departments were already paying invoices promptly at a relatively high level; the Department of Health’s figure for November 2008 was more than 98 per cent, while the Department for Children, Schools and Families (DCSF) also paid 90-plus per cent of suppliers within 10 days. But for others, like Defra, the change involved a dramatic improvement; the culture department (DCMS) moved from 43 to 94 per cent, while the Northern Ireland Office jumped from 48 to 96 per cent. The Department for Business, Innovation and Skills, which leads on the policy, claims that central government’s prompt payment figures have improved by an average of 24 per cent. The only exceptions are the law officers’ departments, a group which includes the Attorney General’s Office, Crown Prosecution Service (CPS) and Treasury Solicitor’s Department (see p20). The CPS’s percentage stayed at a respectable 80 per cent, but the others collectively fell from 56 per cent to a paltry 44 per cent of invoices paid within ten days.

 

So, where things have improved, what made the difference? Strong ministerial leadership helped, says Johnny Holden, head of government services for Visa, which was until recently the sole provider of the Government Procurement Card (GPC) widely used within departments: “The business department, and particularly Lord Mandelson, have had a really good go at this.” Few doubt that the fact that 10-day invoice payment was a centrally-mandated edict, with the public backing of an influential minister like Mandelson, helped focus minds on meeting targets. Martin Williams, chief executive of credit referencing agency Graydon – which has researched the topic extensively – also acknowledges that “central government has shown it understands the concerns of small businesses in particular and stuck to its guns on this one”.

 

On the technical side, a BIS spokesman says central government has been improving the speed and efficiency of its invoice payment systems for the past ten years – so the figures should not be seen as a sudden step change. From this perspective, the improvement in fast invoice payment fits into the broader drive to professionalise and harmonise procurement practices across central government. Indeed, the Office of Government Commerce (OGC) has begun assessing prompt payment of invoices as part of its ongoing procurement capability reviews. What’s more, the trend towards centralisation of back office functions such as procurement over the past decade has removed much of the local variability in the way invoices are handled, making it easier to meet single departmental targets.

 

Technological innovations have also helped. The GPC was introduced in 1998; effectively, it’s a debit card allowing government buyers to pay suppliers within a couple of days, while also removing many of the administrative costs associated with conventional invoice payment. Jim Parkinson, head of e-buying at Buying Solutions – the agency which manages the overall GPC contract for government – says his team stresses the speed of the GPC system when pitching to potential users: “We’ve presented a couple of times in the last month, and [we’ve pointed out that] if you pay on a GPC card, the supplier is paid well within the ten days.” But it’s less clear whether the prompt payment drive has led directly to increased take-up or overall use of the GPC. “We have seen the number of transactions increase, but the value of the average transaction fell,” says Visa’s Holden.

 

Whether it’s paying by card, bank transfer, cheque or even cash, central government is loudly advertising that the overwhelming majority of invoice payments are now being paid within 10 days. So why is there still a perception of government tardiness? A Federation of Small Business (FSB) survey published at the start of this month found small business owners reporting more than 30 per cent of central government invoices being paid late, with the figures for local government and NHS bodies at 25 and 29 per cent respectively. Asked for a response, a BIS spokesman insisted that the findings were based on eroneous beliefs. “Perception often lags behind reality,” the BIS spokesman said. “The FSB findings are totally at odds with the data BIS collects and with a range of other surveys.” The spokesman pointed out that payment is generally slower among local authorities, many of whom have not yet signed up to Mandelson’s code. A recent Forum of Private Business survey, he said, found that local authorities pay invoices within 19 days on average, with 42 per cent of them paid in ten days.

 

Perceptions may be misleading, but they are important. The business department has no power to mandate speedy payment by local authorities or other non-central parts of the public sector; and while it has persuaded two thirds of local authorities to sign up to the Prompt Payment Code, it has little power to see that they live up to the voluntary pledge. Whitehall may be setting an example, but it’s not yet clear that the rest of the public sector – let alone the private sector – is following suit.

 

How departments improved

Percentage of invoices paid within 10 days

	November 2008		November 2009
BIS	(DIUS) 89.5	(BERR) 93.1	94.8
Cabinet Office	51		90
DCSF	91.6		94.3
CLG	77.9		93
CPS	80		80
DCMS	43		94
MoD	72.3		98.4
DECC	73		92
Defra	33.5		99.95
FCO	70.2		96.9
DH	98.1		94.1
Home Office*	79		91
MoJ	64		93
Law Officers depts.**	35		44
NIO	48		96
Scotland Office	89		100
Treasury	90.1		99.2
Wales Office	90		98
DWP	70		97