Working Capital team

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PwC view
Working Capital team
With some EU Member States yet to
set a timescale for implementation,
businesses are finding it difficult
to plan and ensure their processes
are compliant. The risk of getting it
wrong, could be high.
For more information about this subject please contact:
Robert Smid
UK
Tel: +44 (0)20 7804 3598
[email protected]
www.pwc.co.uk/working capital
Niall Cooter
UK
Tel: +44 (0)1509 60 4319
[email protected]
Working Capital team
The opportunities and threats of
the new EU late payment directive
Our European network:
A typical business, purchasing €100m pa is
likely to incur late payment costs of more than
€800k annually. But the impact of addressing
late payment could be a reduction in cash of
more than €1.2m.
Rob Kortman
Andrew Nicholas
Julian Roberts
Kim Stubbs
Christine Catasta
Petr Smutny
Bent Jorgensen
Michael Hardy
Francois Guilbaud
Joachim Englert
Arjen Jintes
Jonathan Pycroft
Davide Arpili
Ola Reppling
Reto Brunner
UK
Tel: +44 (0)20 721 32491
[email protected]
In our experience this does not have
to be a straight choice between cost
and cash.
CEE
Tel: +42 (0) 251151215
[email protected]
Businesses that are well prepared for the
legislation are likely to reap the rewards in
reduced costs and increased cash flow.
Whatever your business, this legislation will
affect you, if you:
Netherlands
Tel: +31 (0) 887 923 815
[email protected]
• Sell to organisations within the European
Union
UK
Tel: +44 (0)20 721 26432
[email protected]
Denmark
Tel: +45 (0) 3945 925
[email protected]
Norway
Tel: +47 (0) 95 26 01 97
[email protected]
UK
Tel:+44 (0)20 721 26103
[email protected]
Finland
Tel: +358 50 346 8530
[email protected]
Spain
Tel: +34 915 684 947
[email protected]
UK
Tel: +44 (0)20 721 35502
[email protected]
France
Tel: + 33 15 657 8537
[email protected]
Sweden
Tel: +46 (0) 10-​2124156
[email protected]
Austria
Tel: +43 1 501 88 1100
[email protected]
Germany
Tel: +49 69 9585 5767
[email protected]
Switzerland
Tel: +41 (0)58 792 1419
[email protected]
Martin Bohme
Belgium
Tel: +32 2 7107257
[email protected]
August 2012
Riccardo Bua Odetti
Italy
Tel: +39 02 66720536
[email protected]
Husnu Dincsoy
Turkey
Tel: + 90 212 376 5308
[email protected]
• Buy from within the European Union
• Have customers that pay you late
• Pay suppliers late
• Have commercial customers or suppliers
on terms of more than 60 days
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• Have public sector customers on terms of
more than 30 days
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific
professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its
members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or
for any decision based on it.
© 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers
International Limited, each member firm of which is a separate legal entity.
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Design: 120717-154921-NJ-UK
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What is the Directive?
How does this affect businesses and what can be done?
On 16 March 2013, the 27 Member States must transpose the Directive
into law
High performing companies are likely to have the good practices in place that will mitigate the risks associated with
the new Directive
What is in the Directive?
A typical commercial relationship
It is designed to combat late payment in commercial
transactions to ensure the proper functioning of the of
the internal market, by:
Contract
30 days
Order
• Harmonising and limiting payment terms
Express agreement of
extended terms
Key considerations are:
• It relates only to commercial transactions between
organisations
What does the Directive do?
• Acceptance and verification delays capped at 30 days
• Late payment interest at 8% above base
• A minimum late payment fee of €40
What local variations can be applied?
• A higher rate of interest for late payment
• Inclusion of contracts concluded by 16 March 2013
• Reduced period for acceptance and verification
At 6 July 2012 only France had adopted
the Directive
To make the most of this legislation, businesses
should be aware of these details within each of
the states where they do business.
• No reason – typically due to a lack of
control within the payables process
33 Ensure compliance of existing
contracts
• Customers extending terms
33 Ensure compliance of existing
contracts
• Systems unable to raise late
payment fees
• Non payment of charges
33 Create processes that support
prompt payment
• Unable to claim due to poor contract
compliance
33 Establish contract compliance
monitoring
• Failure to leverage the Directive to
reduce terms
33 Staff training and awareness
• Increased credit risk for customers
who relied on long terms
When you consider the reasons for late
payment it is possible to isolate the
opportunities for improvement from both
the buyer ‘s and the seller’s perspective. By
focussing on the typical levers in each area, it
is possible to reduce late payments
33 Negotiate improved commercial
terms
33 Develop billing systems
Typical levers of prompt payment
33 Improve collection and recovery
processes
Buyer
33 Enable early identification and
resolution of disputes
• Efficient payables
• Control of
payables
• Applying interest charges for late payment at 8% above base, plus
• A minimum late payment fee of €40
Through our European network
of working capital specialists, we
have a unique insight into when
and how the Directive will be
transposed in to law
Example
A typical company:
• €100m spend p.a.
• 5,000 invoices p.m.
• 30% paid 15 days late on
average
Results in a typical liability of
€800k per year in late payment
fees & interest
Or
€1.2m reduction in cash by
eliminating late payments
Late
invoices
• Good forecasting
• Effective
collections
• Supplier financing
33 Staff training and awareness
The Directive incentivises prompt payment through:
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• Provisions for dealing with down payments already
made
• Extended terms not agreed
• Cost of new systems
• A lower maximum payment term
• Higher payment terms limits for certain Public
Sector purchases
Our solutions
• Early payment
• Financial difficulties – organisations that
are unable to make a payment
Order to Cash (Trade AR)
Risks
• Late payment
Each Member State is considering how it will
comply and whether it has the appropriate legal
framework in place. Each State will also set its
own timeframe and could make certain small
changes to the legislation.
Cleared funds received by due date
Our solutions
33 Design compliant terms extension
programmes
• Cash management – organisations
delaying payment to manage their own
cash flow
Payment
received
Risks
• Lack of clarity around existing
contratural terms
• Disputes – a problem with the invoices or
goods/services supplied
We help our clients navigate the detail and
deliver tangible results
• Manage disputes
• Treatment of
disputed invoices
A diagnostic review of working capital will
identify the risks, costs and opportunities
available to you at a fraction of the cost of
doing nothing
Key:
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• Payment terms capped at 60 days for business
purchases, 30 days for public sector purchases
Payment
issued
Invoice
received
Supplier must fulfill their contractual obligations
Procure to Pay (Trade AP)
• Flexibility can be agreed between contracting parties
Payment terms
Invoice
issued
e.g. relating to contract
valuations ahead of billing
• Entitling suppliers to claim compensation and
interest in the event of late payment
In our experience, around 30% of invoices
are paid late, typically because of:
60 days (30 for public sector)
Verification and
acceptance
Goods/
Service
But the challenge
of timely payment
remains
5%
15%
30%
50%
financial difficulties
cash managers
Seller
• Customer take-on &
risk management
• Proactive customer
management
• Pro-active debt
management
• Customer education
• Targets & reporting
• Early identification
of disputes
• Prompt resolution
• Eliminating causes
of error
no reason
dispute