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UK CFOs missing out on £6.7 billion each year by not taking advantage of early payment discounts

27 Mar 2019 07:30

  • More than one in five finance leaders (22 per cent) say their accounting systems are out of date
  • Two fifths of businesses (40 per cent) who have not upgraded their software in the past five years cite ‘resistance to change’ as one of the main reasons
  • Barclaycard has identified that the behaviours and leadership styles of UK CFOs fall into four categories: Conformists, Resourceful Traditionalists, Explorers and Trailblazers
  • Companies with Trailblazer CFOs at the helm are outperforming their peers, securing almost £83,000 in discounts on spending each year

New research from Barclaycard reveals that a Chief Financial Officer’s (CFO’s) leadership style and willingness to invest in their financial and accounting software has a tangible impact on their business’ bottom line.

Faced with tighter margins and increased pressure to meet KPIs, businesses are turning to their accounts payable platforms to help them achieve their goals, with four in ten businesses (40 per cent) looking to upgrade their financial and accounting systems in the next 1-2 years.

The study also found that over a fifth (22 per cent) of finance heads believe their accounting software is out of date. This can have significant financial implications; in particular, one in six (16 per cent) respondents said their systems do not allow them to take advantage of early payment discounts – pre-agreed discounts for paying suppliers earlier than their standard payment terms.

By capitalising on early payment discounts, businesses can achieve significant savings. Using economic modelling, Barclaycard identified that UK corporates currently save a total of £14.4 billion in early payment discounts each year[1]. This equates to an average of £75,389 per business[2].

However, there is a clear opportunity for improvement; the modelling also revealed that companies not making the most of early payment discounts are leaving an estimated £6.7 billion on the table each year[3].

Barriers to upgrading

The most common barrier to investing in finance technology is an inflexible culture, with 40 per cent of businesses that have not invested in their software in the past five years citing ‘resistance to change’ as one of the main reasons.

When asked how existing systems could be improved, more than four in ten (44 per cent) would like more automation, and nearly a third (32 per cent) said they would like to add functionality that automatically matches supplier invoices against purchase orders. One way for a business to achieve this is to integrate their payments solution directly into their procurement platform. This can save finance teams significant time and effort, helping them pay suppliers more quickly, and ultimately capitalise on early payment discounts more often.

Trailblazer CFOs pave the way for business success

Against this backdrop, a CFO’s ability to impact their business’ bottom line, whether by implementing new accounting software, driving efficiencies or managing risks, can be greatly dependent on the way in which they make decisions.

Barclaycard has identified that CFOs’ decision-making styles fall into four categories:

  • Conformists – CFOs that rely on tried and tested systems and practices and are therefore more reluctant to adopt newer approaches and technologies.
  • Resourceful Traditionalists – Those that place more emphasis on insights gained from previous experiences when making important decisions, but who are potentially open to new approaches.
  • Explorers – CFOs that are prepared to consider and explore new and improved accounts payable technologies and processes, and who also tend to be more prepared to take on board insights gained from data analytics.
  • Trailblazers – CFOs that are motivated to investigate, actively trial and speedily implement new and improved ways to do their job, and who have been able to maximise efficiencies and cost savings as a result.

Barclaycard’s economic modelling identified that companies with Trailblazer CFOs at the helm are significantly outperforming their peers; on average, businesses led by a ‘Trailblazer’ CFO capitalise on almost 98 per cent of the overall discounts available, equating to savings of £82,818 per business each year.

In comparison, businesses with a ‘Conformist’ CFO typically take advantage of only 52 per cent of the discounts available, securing an average of £68,478 per business each year, which is the lowest of all the CFO types. Conformists therefore stand to gain the most by adopting a best-practice approach, which could see them achieve an estimated average uplift in discounts of £18,675 each year[4].

Marc Pettican, Managing Director of Barclaycard Commercial Payments, said: “CFOs have the critical responsibility of driving growth by optimising their business’ financial performance. Our research shows that CFOs that embrace technology not only achieve tangible savings for their organisation, they also streamline business processes and paperwork, even when faced with resistance to change.

“The latest innovations in B2B payments, such as integrating payments directly into the procurement journey, can save finance teams significant time and effort, helping them capitalise on early payment discounts more often. CFOs play an essential role in advocating and piloting these new technologies, helping their organisation to stay one step ahead of the competition.”

Results by leadership style (excluding UK micro-businesses)

Leadership style

Average discounts secured per business p.a. (£)

Average overall discounts that could be available per business p.a. (£)

Average unrealised discounts per business p.a. (£)

Conformists

68,478

130,727

62,250

Resourceful traditionalists

76,025

114,991

38,966

Explorers

73,876

110,137

36,261

Trailblazers

82,818

84,523

1,705

Overall averages

75,389

110,219

34,830


Discounts captured by leadership type (excluding UK micro-businesses)

Leadership types

Overall discounts captured (£millions)

Share of overall discounts captured
(per cent)

Non-micro Businesses ('000s)

Proportion of non-micro business population
(per cent)

Conformists

                                  2,760

19.2

56.8

22.6

Resourceful traditionalists

                                  4,403

30.6

76.2

30.2

Explorers

                                  3,707

25.7

64.2

25.5

Trailblazers

                                  3,542

24.6

54.8

21.8

Total

14,413

100.0

              252.0

100.0

Notes to editors

This study was conducted by Opinium Research between 18th and 25th February 2019, amongst 500 senior financial decision makers in companies with turnover of £6.5 million or more and who do not outsource their accounts payable.

Economic modelling was conducted by Development Economics, the methodology for the figures identified can be found below. Further information is available on request.

[1] Development Economics calculated the annual savings from early payment discounts (£14.4 billion) based on the percentage of UK (non-micro) businesses that negotiate a discount multiplied by the percentage take-up of the offer, multiplied by the average discount rate secured. This figure was multiplied by the aggregate turnover figures for non-micro businesses in each of the 12 sectors (using ONS Business turnover figures for each sector, excluding non-micros).

[2] To obtain the annual savings from early discounts figure per business, the total figure was divided by the number of UK non-micro-businesses (from ONS Business Population estimates) multiplied by the proportion of businesses that seek discounts (information obtained by Opinium research survey)

[3] The ‘uncaptured’ opportunity figure (£6.7 billion) has been calculated by taking the total potential available discounts (£21.071 billion), and subtracting the £14.414 billion of discounts currently secured.

[4] The estimation of the potential uplift that could be secured if Conformists adopted a best-practice approach (£18,675) was determined following a review of the business survey results including the levels of investment in accounting systems, barriers that have prevented upgrades or investment in systems, and respondent’s views on how systems could be improved. The estimates are also based on differential responses across businesses by sector and size band.

For further information, please contact Oliver Stevenson at Barclaycard on oliver.stevenson@barclaycard.co.uk or +44 207 116 3837

About Barclaycard

Barclaycard, part of Barclays Bank PLC, is a leading global payment business that helps consumers, retailers and businesses to make and take payments flexibly, and to access short-term credit and point-of-sale finance. In 2018 we processed nearly £268bn in transactions globally. Barclaycard is a pioneer of new forms of payment and is at the forefront of developing viable contactless and mobile payment schemes for today and cutting-edge forms of payment for the future. We also partner with a wide range of organisations across the globe to offer their customers or members payment options and credit.

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