Late payments are more than frustrating. They cost businesses time and money, devastate cash flow, contribute to people being made redundant and reduce the ability of companies to invest in their future.
Since April 2016, large businesses have been required to publish their payment practices as part of Government efforts to end the culture of late payment and ensure that smaller organisations do not get caught out.
Payment performance became a pressing issue as a result of the global financial crisis that landed on our doorsteps nearly a decade ago.With confidence devastated and credit harder and more expensive to access,companies stockpiled cash and payment times went through the roof.
Under the new rules,large firms have to disclose their payment terms, the time it takes them to pay their bills and the proportion of invoices paid beyond agreed terms.The Government is determined to make the UK a place where late payment is unacceptable and 30-day terms are the norm. This is good news for our industry, and means that reputations are on the line for the worst offenders.
As a nationwide operation, Clearabee has built relationships with a wide network of waste stations and recycling centres to manage and recycle the junk we collect. With tens of thousands of tonnes going for onward processing, we have a vested interest in the financial health of these partners and their ability to invest in improved processing.
Given the significance of these partners to our business, we work to 30-day payment terms and aim to pay all bills on time or early. The nature of our business means that we tend to enjoy goodcash flows so we have always been able to do this – but prompt payment is not practised by everyone across our industry.
Several waste transfer partners have told us recently that a number of large companies in the sector are using their clout to ‘negotiate’ 90- and even 120day payment terms with transfer stations, before exceeding their own terms and paying up only after a great deal of chasing.
As a result, good businesses are being pushed the edge of financial oblivion. Several of our waste transfer partners,while technically profitable, are at serious risk of insolvency due to late payments. They are being forced to delay payment to their own creditors, slowing the flow of cash to a trickle down the supply chain.
If waste transfer stations struggle for financial viability because of late payments, there will be fewer of them to process the junk that homes and businesses throw away. Those that do survive will be forced to focus on shortterm cash flow, and will be unable to make the investments required to provide the extra capacity the UK needs for waste processing and recycling.
While the volume of household waste created in the UK has remained consistently at around 75 million tonnes in recent years, the UK must recycle an additional 1.5 million tonnes of it a year by 2020 if it is to meet the Waste Framework Directive’s target of recycling 50%.
Meanwhile, predictions from the Chartered Institution of Wastes Management suggest we must plan to handle more than 600,000 tonnes of additional commercial & industrial waste during the next four years. So the UK needs more capacity, not less.
The financial squeeze placed on waste transfer stations though late payments risks affecting future competition and innovation in the industry too. We work with responsible partners that handle a wide range of waste streams and operate a zero-to-landfill policy wherever possible, and they rely on a largely open market when it comes to disposing of junk.
Forcing such companies to beg or borrow money from other sources to cope with the negative cash flow implications of late payment will inevitably affect the quality of service we receive. Cost efficiencies will take greater precedence, certain tasks will become economically unviable and more materials that could be recycled will end up in landfill.
The move to a circular economy (CE) will require an expansion of waste processing capacity, not a contraction in supply. Should independent waste transfer stations continue to go to the wall, waste removers will have to invest in opening more of their own recycling centres around the UK, something that will only be feasible for the largest players. There should be plenty of opportunity for smaller, independent waste transfer stations to make a good living.
Everyone would benefit if more companies in our sector move to 30-day payment terms. The opportunities for the industry to thrive within the CE can only be realised if the circulation of cash is accelerated.
Daniel Long is managing director of Clearabee