Six weeks ago, President Obama announced the voluntary SupplierPay initiative. Already this week, we’ve gone over why the pledge matters in the first place and the technology tools that could make it happen, but I find myself wondering if this pledge means small businesses will actually get paid sooner or not.
What is this SupplierPay Pledge?
SupplierPay is a private version of the QuickPay program that President Obama established in September 2011. Basically, it’s a recognition that improved access to working capital means small businesses can grow at the pace they want and that large companies have a responsibility to pay their small suppliers quickly or to provide financing options so these small businesses don’t have to worry about cash flow.
More working capital leads to more capital investment, more hiring at small businesses, and general solvency for some of the smallest suppliers. You’ll recall on Monday this week, I related the story of MusicBrainz and the three-year-old late payment that amounted to 10% of their budget.
Don’t Contract Terms Already Dictate Payment Timeframe?
General business practice states that if businesses want to get paid more quickly, they should write that into the contract in the first place. This is true, but in the real world large companies have significant leverage when it comes to actually paying their invoices in a timely fashion. Let’s use MusicBrainz again. They could’ve taken Amazon to court over that $20,000, but Amazon would’ve simply needed to wait them out and MusicBrainz could’ve gone under.
If a large corporate customer decides to pay its small supplier late, for whatever reason, there’s little that can be done since suppliers may not have the legal or financial resources to sue for breach of contract nor do they want to alienate their customers. Realistically then, the payment terms included in the contract may not hold much weight after all.
Will SupplierPay Change Anything?
Since SupplierPay is a voluntary, non-binding pledge, there’s no real compulsion behind it to do anything from a legal standpoint. It does create a bit of positive peer pressure, however, and provides ample business opportunity for solution providers like Taulia, Tradeshift, and NVoicePay. Taulia in particular is ecstatic about SupplierPay, as their partnership with Citi and other supplier finance offerings means they’re in a solid position to capitalize on SupplierPay. Tradeshift, for their part, presented a public challenge to the rest of the Fortune 1000 to sign onto the pledge as well.
From a PR perspective, which is sometimes more important to overall business health than the legal viewpoint, signing onto SupplierPay is a public promise that the 26 signatories made to be better business partners. Should these companies not follow through on the pledge’s agreed-upon standards, and this gets out, it could cause some reputation damage in the near-term.
Final Thoughts
Supply chain finance solutions, like those Taulia and Bottomline Technologies offer, and business networks like Tradeshift, Ariba, and Basware offer significant opportunity to speed payments to suppliers or provide the better access to working capital that the SupplierPay pledge promotes. Do I think it will actually change anything? I’m not sure, but the public nature of the pledge itself makes that a very real possibility. Either way, however, we’ll be watching to see if more companies sign on and how the results come down.
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