That would be a Christmas present and a half!
Over the past few weeks, at various meetings, the hot business topic has been the very late payment of invoices. Not just late payment, but the “very” late payment!
Everyone is very aware of how tough it has been in the last 5-6 years in the offshore energy sector and for all the businesses that support the associated supply chain. And in Aberdeen that’s a lot !!
Companies, large and small, have all suffered job losses, have seen revenues dramatically decline, business streams dry up and disappear, and are still finding it hard to survive, never mind getting back on the growth trail again.
There's no doubt, for reasons that don't need to be recorded here, that the offshore sector business structure has been "re-set". There are some good signs of stability, of late, although many supplier companies can't really put their hand on their hearts and say with great confidence how 2020 will be for them.
The issue of late payment is the scourge of all business, but the now it appears that very late payment of bills by some of the largest companies, at the top of the supply chain is causing real concerns.
After all the calls for “innovation”, “collaboration”, “optimisation” and all the other "tions", the fact is, that many businesses lower down the supply chain are now in a cashflow crisis.
Companies at the top are taking far too long to pay their suppliers, some well in excess of 60 days. Unfortunately, this has the knock-on effect of delaying payments even more all down the chain.
It is absolutely no encouragement to older & new suppliers with great ideas if they can't get money in for day-to-day survival never mind future investment. The sector has a real skills shortage and its harder to get investment. Late payment culture defeats investment and the ability to train new people. It is no incentive for attracting the new talent that is needed to build upon Aberdeen’s success in the energy industry.
It seems absolutely crazy that the sector should want to cause such self-harm. We must be fair and acknowledge that not all companies at the top are involved in late payment practices, but why are suppliers not even paid as agreed by the terms on the purchase order ? The real why?
We are coming upon Christmas & a new decade, so let’s hope that the headline above becomes a reality.
Replies
This is great, lots of good points about how this affects everyone and the whole industry. I am glad you have someone ear who may be able to change the culture of delayed payments
Certainly happy to have a discussion about our Debt Recovery rate and offerings for anyone struggling because of other companies failings! Should never be the case that if you have carried out your part of a contract, they don't pay you.
Happy to say that Matt Abraham the Supply Chain and HSE Director at Oil and Gas UK has been in touch and wants to hear more from companies that are having problems with very late payment by large companies in the sector. Get in touch if this is happening to you and you want to let Matt know.
I remember when I worked in the finance department of Petrofac around 5 years ago, my job was to hunt out old invoices...(some we're talking years!) that were owed to us by other big oil companies. The final figure was sickening !
I agree with you here, and hope this can all change within all sectors. It definitely has a bit effect.
Jessie. Thanks for the reply. It's a really big problem and it's flying under the radar of the senior management of some of Aberdeen's largest enterprises. It will hit hard when they suddenly find small but critical suppliers fail to deliver, and their own projects and their bottom line suffers. They need to stop any such bad practice, and be pro-active by ensuring that their suppliers are being paid as per the terms of their agreements.
I was going to add a flippant line about blood pressure rising, but this is not a jocular issue, indeed for some businesses it does affect health.
Sorry - my reply must not have sent yesterday. Thanks for a great discussion here though!