Nadhim Zahawi, a member of the BIS Select Committee, the Conservative Party’s Policy Board and MP for Stratford on Avon, is calling for prompt and early payment to small businesses in a post on the Government’s web site.
Mr Zahawi comments: “Small businesses don’t have big cash reserves to tide them over month to month, so as their books fill up prompt payment is essential. Most small firms would prefer to be paid within a month of invoicing, yet when dealing with large companies at the apex of the supply chain they’re rarely in a position to walk away if they don’t like the terms on offer.”
He continues, “There’s no mystery about what’s going on here. Chief Financial Officers regard these contracts as a form of credit, credit which can be put to work earning the company a return between payment periods. Yet it’s manifestly unfair that small businesses should be strong-armed into the role of informal bankers to Britain’s biggest companies. While they wait for payment to arrive small firms often have to borrow at high rates from unsympathetic banks, forcing management to worry about staying solvent at a time when they should be focused on growing the business.”
I want to see Government legislate for a 30 day non-negotiable statutory limit on payment terms between large cap companies and small enterprises, with substantial fines for breaching that limit. To enforce the new rules, a Prompt Payments Ombudsman would be established, allowing suppliers to raise concerns on a confidential basis. These new payment terms could be introduced on a stage by stage basis, with final implementation by 2015.”
Roberto Moretti, CEO for Oxygen Finance – Europe, adds: “It is encouraging to see the Government focusing not just on the scourge of late payment to small businesses but also potential solutions to secure prompt and even early payment. However, there is a better way to create a culture of early payment that encourages large corporates and public sector bodies to engage with their suppliers that incentivises and rewards both parties.”
“The Oxygen Early Payment programme enables organisations to pay their suppliers earlier than contracted in exchange for a rebate, which is then returned to the buyer as additional income. This solves a number of the key issues faced by organisations today – access to new income, late payment to suppliers and inefficient supply chains. The supplier gains competitive advantage from Early Payment, which enables them to prosper and these CSR benefits are in turn conferred to the participating organisation.”
Despite tough budgets cuts in their respective sectors, Imperial College Healthcare Trust and Oldham Council are succeeding in generating substantial new sources of income and realising efficiency gains, whilst protecting front line services.
Two Case Study Reports outline how the implementation of Oxygen Early Payment (EP) programmes have been instrumental in optimising the value locked in the supply chain and ‘monetising spend’.
Marcus Thorman, Director of Operational Finance at Imperial College Healthcare Trust, commented: “At Imperial College Healthcare Trust we are implementing a comprehensive transformation of our finance function, an initiative we call the Building World Class Finance Programme.This is an innovative and collaborative way of working with our key suppliers and has been developed to build closer working relationships and to drive mutual value – both for our suppliers and for the Trust.”
Charlie Parker, Chief Executive at Oldham Council, also said, “We have received praise and support from many of the participating suppliers and more are looking to join the programme. The Council is saving money while at the same time supporting our suppliers. The project team is now embarking on phase 2 looking to further optimise the P2P process, delivering efficiencies – and potentially more revenues – through more effective operations.”
This detailed case study was prepared by the Chartered Institute of Public Finance and Accountancy (‘CIPFA’).
You can download the full reports here.
In an interview with by Dian Schaffhauser at Pcubed, Mark Hoffman shares the Oxygen Finance philosophy and reveals where the company is headed in the near future.
Pcubed: The Oxygen philosophy is “spend is the organization’s greatest untapped asset.” How does spending become an income stream?
Mark Hoffman:The whole idea is, you owe your supplier money, which is normally considered a liability and [you] haul the asset out of that. Historically, the way you do that is to negotiate what is known as a discount with that supplier for early payment. People would say, “We’ll pay you net-10 for a one and a half percent discount.” Sounds good. but it’s rarely taken, because people can’t really pay in 10 days. So the discount never gets taken even though it may have been negotiated.
David Brown, [Oxygen Finance's founder,] really thought about that. You can take the discount and turn it into a rebate instead, so the buyer would pay full price for whatever he was buying, and the supplier would rebate back to him the one and a half percent discount. It’s a little bit of a twist. But if you have a rebate, then a rebate gets classified as income.
What we do is go into a buyer and say, “I can bring you new income, and I can bring you cash, and I will do that on a free basis – a contingent basis.” We take a slice of that money that is being rebated back to the buyer.
Read the full interview with Oxygen Finance’s Mark Hoffman in “The Art of the Play” at Pcubed
Hundreds of local authorities across England and Wales have been given the green light from the European Union to start earning millions of pounds by simply paying invoices earlier and electronically.
A framework contract with Oxygen has been let by Northumberland County Council, under formal EU processes, that any other public body can use without having to go through their own tender processes.
Oxygen Finance’s programme facilitate payments from public sector bodies to suppliers so that in return they get a rebate that can be ring-fenced – even for frontline services.
Oxygen Finance European Chief Executive Roberto Moretti said: “Late payment is a curse for small businesses and chokes local and national economies.
“What this contract means is that the public sector can lead the fight back and at the same time start a gold rush towards millions in extra funding that can be invested into frontline services.
“This is a huge endorsement of what we are building here at Oxygen Finance and we are pleased to report that we already have several other public sector bodies ready to engage on the back of this success.”
Oxygen Finance has moved its UK and European Headquarters to the heart of the City:
Oxygen’s European Chief Executive, Roberto Moretti comments about the move: “Oxygen Finance has enjoyed tremendous growth this year, both in terms of client demand and our team, as our approach to Monetising Spend gains traction with major corporates and public sector organisations.”
“This move offers the space and flexibility to accommodate our accelerated pace of growth and a superb ‘heart of the City’ location.”
Oxygen Finance Formally Awarded OJEU Framework Agreement
On 6th August 2013, Oxygen Finance was formally awarded a “Framework Agreement for a Supply Chain Finance Solution” by Northumberland County Council in accordance with the Public Contract Regulations 2006 and procurement best practice.
This Framework has a potential 4 year duration, allowing all UK Contracting Authorities to call-off against it in order to deploy Oxygen Finance’s Early Payment Programme across their spend.
The Contracting Authorities listed as falling within the Scope of the Contract and therefore able to call-off against the Framework include, without limitation: Government Departments and their Agencies, Non-Departmental Public Bodies, NHS Bodies, Local Authorities, Emergency Services, Educational Establishments and Registered Charities.
Oxygen’s European Chief Executive, Roberto Moretti, explains: “This Contract award is a huge endorsement of what we are building here at Oxygen Finance and we are pleased to report that we have several other public sector bodies ready to engage on the back of this tender success”.
“The Official Journal of the European Union (OJEU) rules ensured that the tender was available to all Supply Chain Finance providers in the market” Roberto continues, “and the resulting Framework Agreement means that the timeframe for new public sector clients to start generating income from their spend is shorter today than it was yesterday”.
Roberto adds, “In addition, Oxygen was thrilled that the OJEU process decision was actually accelerated by nearly three weeks as we believe this delivers a really positive message about the uniqueness of our proposition.”
Oxygen Finance hosted a Breakfast Fringe Event, “The Public Sector’s Hidden Treasure” at the Local Government Association’s Conference.
Chaired by Heather Jameson, Editor of the MJ, the panel specifically examined the principles and benefits of Early Payment.
Roberto Moretti, Oxygen Finance’s European CEO, comments: “In the wake of the Comprehensive Spending Review and severe on-going budget cuts, we have brought together an expert panel to discuss ways of finding new income streams for public sector entities.”
“This is a new and innovative practice being undertaken by many local authorities which generates a new risk-free income stream while stimulating growth in local economies and protecting front line services. We were pleased at the positive response from leaders of public sector organisations, who could see the value that Early Payment brings – not only in terms of income generation but also the advantages to the SMEs within the supply chain and the liquidity benefits to the local economy as a whole.“
The event drew on examples from Oldham Council and Imperial NHS Trust to highlight the proven benefits of this new solution. Roberto Moretti was joined on the panel by Professor Tony Travers, Sir Howard Bernstein (Chief Executive of Manchester City Council) and Emma Alexander (Executive Director of Oldham Metropolitan Borough Council).
Click here to read the White Paper, “The Public Sector’s Hidden Treasure”