Update on the implementation of early payment initiatives to small and medium enterprises (SMEs)

Report: 11
Date: 18 June 2009
By: Director of Resources on behalf of the Commissioner

Summary

The following update informs members of the status of the previously approved actions in support of the Mayor’s Early Payment to Small and Medium Enterprises (SMEs) Initiative and the current payment profile for such suppliers.

A. Recommendations

That

1. members note the actions taken to date to improve the time to make payment on undisputed invoices to SMEs with the ultimate aim being payment within 10 working days of the receipt of a valid invoice and the current payment profile for SMEs.

B. Supporting information

1. In appendix C of the paper entitled “MPA Commitment to GLA
Four Year Responsible Procurement Plan in January 2009, the Committee approved a series of actions with the aim to pay SMEs earlier than the current nett 30 day payment terms and ultimately for all SMEs to be paid within a 10 working day payment term. In approving these actions, as part of a wider programme of improvement to procurement processes, the Committee was satisfied that these supported the principal duties of the Authority.

Response to questions raised by MPA members at the Finance and Resources Committee on 23 April 2009

Q1. How are you measuring the 10-day period?

For the 23rd April 2009 report the MPS measured the 10 days strictly as 10 days from invoice date to payment date. Taking the chairperson’s comments, we have adjusted this measurement to 10 days from date of receipt from April 2009. The MPS payment system does not hold date of receipt so we will perform regular sampling exercises to calculate average time invoices take in the post. We will add this figure to the 10 days and produce performance indicators in line with the initiative.

Q2. What will be done to speed up scanning as 5 days is not acceptable?

The report does state that a dedicated post box address has been created and that SME invoices sent to it are prioritised. I can report that we are scanning these invoices on the date received. Other invoices are scanned within two days, excluding those from known non-SME suppliers, which are scanned next. Please note that it is not possible to identify SME invoices at point of scanning if they are not addressed to the PO Box.

Q3. How many invoices do you scan daily?

We process on average a total of 1,100 invoices daily. Of this total, 600 are from SMEs of which 350 are scanned and 250 are manually processed. The remaining 500 of the total invoices are from Non SME suppliers and of these approximately 250 are scanned and 250 are manually processed.

Q4. How long does it take to scan invoices?

Members should note that there is a significant preparation time required before invoices can be scanned. Invoices are received together with the general post that includes non-invoice documents, letters, advertising etc. For example, before invoices are ready for scanning, they need to be separated from the general post; be date received stamped; be checked to ensure the MPS is the invoiced party and that the supplier has quoted a valid purchase order or cost centre code (required for scanning recognition) and batched removing staples etc.

Payment Performance Information

9. The data prior to April 2009 was restricted to the data available for extraction from SAP using standard reports [1].  From April 2009 the MPS is using methodology as outlined in The Department for Business, Enterprise & Regulatory Reform (BERR) document of the 12 November 2008. The definition for 10 day payment to SME defined in the BERR document of the 12 November 2008 states that payment date will be deemed as two days after the date it leaves our payment system to clear BACS. The clock starts when the MPS receives a valid and correct invoice, if an invoice is incorrect the clock returns to zero until such time as a correct invoice is received. The MPS uses a sampling exercise to determine an average postage delay to get a received date.

 A summary of data for payments made for since November 2008 is set out below.

These months have been included to show a comparison between the three month period immediately preceding, the introduction of actions taken to date to improve the time to make payment on valid invoices to SMEs, and the improvements under the new processes in place from February 2009.

Table 1 - November 2008 – January 2009 [Payment from invoice date]

Table 2 -  February - March 2009 [Payment from invoice date]

Table 3 -  April 2009 [Payment from date of invoice receipt]

In real terms some 90% of invoices (equating to £10.6m in value) have been paid to SMEs within the contracted 30-day payment during April 2009. 

Purchase to Pay (P2P)

10. Compliant Routes to Purchase (RTPs) have been implemented for all but 9 categories of spend;

•  4 (Catering, FMEs, Intelligence Services and Legal) have plans in place to be on-boarded onto either the EBP or MetFIN RTPs
•  3 (Rent & Rates, Interpreters and VRES) have unique Purchase to Pay processes and require category specific RTPs
•  2 (Partnerships and Translators) require further definition

11. The timetable of activities underway to enable these 9 categories of spend and the incremental route to purchase compliance they will bring is as follows:

May

• Rent & Rates (+1%), Interpreters(+8%) and VRES(+7%)
  Each of these category specific RTPs have been evaluated against a number of criteria to ensure they meet the MPS’s compliance standards and a paper will be presented, to the May DRM steering group, requesting approval as compliant RTPs

June

• Forensic Medical Examiners, (+1%)
  The new Forensic Medical Examiners contracts continue to be loaded onto SAP and Purchase Orders issued to each FME bringing an anticipated 1% onto a compliant route to purchase in June.

June to September

• Catering (+11%)
  Catering have now agreed to bring the top 10 suppliers onto a limit order RTP commencing with 3663 in June, the remaining suppliers will come on board in a phased manner to September. This will gradually bring an additional 11% onto a compliant route to purchase by September.

October

• Intelligence Services (+1%)
•  Legal (+2%)
  It is currently anticipated that Legal expenditure via “Metlaw” (+2%) and be on boarded to a SAP RTP by October following a change in the SAP going live.

The following two areas require further technical investigation by the ERP Centre / Business areas and it is not yet possible to provide an estimate as to when they will be brought onto a compliant route to purchase.

•  Partnerships (+1%)
•  Translators (+3%)

12. Compliance reporting (number of invoices paid with a matching purchase order) went live across the MPS and MPA in April and now provides Management Information at a Business group, B/OCU and transaction level.

13. The organisation as a whole achieved 55% compliance for invoices paid in April. It should however be noted that there is a lag of several months from the Purchase order being raised to the invoice being paid and the information appearing on the compliance report. The current efforts within the business areas resulting from the new visibility provided by the compliance report will therefore not be evident from a reporting perspective until Aug/Sept.

14. To drive the take up by the business areas of the compliant route to purchase the P2P workstream secured a team of change managers. This team has now conducted approximately 20 workshops around the organisation with approximately 270 people attending.

15. The following categories of spend went live on the P2P system at the end of February; Temporary Labour, Consultancy, Watercoolers, Intelligence Services, Cycle to Work, Office Machine Repairs, Photocopiers, Training and Miscellaneous; enabling these categories on the system will increase the number of orders placed via a compliant route to purchase from 57% to 72%.

16. The timetable of activities underway to enable the remaining categories of spend and the incremental route to purchase compliance they will bring is as follows:

April

•  Forensic Medical Examiners, (+1%)
  The new Forensic Medical Examiners contracts are currently being loaded onto SAP and Purchase Orders issued to each FME bringing an anticipated 1% onto a compliant route to purchase in April.

June

•  Catering (+11%)
  Discussions are underway with Catering and we anticipate that we will have an agreed way forward by the end of April. Provided there are no significant system changes required we will bring an additional 11% onto a compliant route to purchase in June.

October

• Legal (+2%)/Property (+4%)
  Both Legal expenditure via “Metlaw” (+2%) and payment of Rent and Rates via Raindrop Manhattan (+4%) are handled via non SAP systems. Papers will be presented to the DRM steering group in May requesting either approval of these non SAP systems as compliant routes to purchase, in which case the spend will be seen as compliant from June, or to recommend changes to the systems and/or processes to make them compliant. In the case that additional systems work is required then the time frame to bring these areas onto a compliant route to purchase will be dependent on the amount of change required.

The following two areas require further technical investigation by the ERP Centre and it is not yet possible to provide an estimate as to when they will be brought onto a compliant route to purchase.

•  VRES (+6%)
•  Interpreters (+4%)

17. Compliance reporting (invoices paid with a matching purchase order) went live for DOI, 3 TP boroughs and TPHQ in March. It is planned that the remaining business areas will go live in April and monthly performance reports will be provided to business groups.

18. To drive the take up by the business areas of the compliant route to purchase the P2P workstream has secured a team of change managers. Change activities are planned to start mid March and will continue through to mid June.

C. Race and equality impact

1. The implementation of the SME payments initiative can be described as “affirmative” action for a distinct group of suppliers who, it is viewed, can be disadvantaged in the procurement process due to lack of equality. Supporting diversity of ownership in the MPS supply base could provide benefits to Social Enterprises, Black and Minority Ethnic Enterprises, women and disabled owned business.

D. Financial implications

1. This report sets out the work completed to date to improve the Service’s payment processes within a compliant environment. The actions completed to date will make a significant contribution to the Mayor’s objective of making payments to SMEs within 10 working days.

2. The work implemented to date has been completed within existing resources and as part of a larger programme of work to improve the Service’s procurement processes. There will, however, be a potential loss in interest charges on early payments. It is still difficult at this stage to determine this potential loss as it depends on the level of early payments and prevailing interest rates but a best estimate is still considered to be between £50k and £100k in terms of opportunity costs.

E. Background papers

None

F. Contact details

Report author(s): Paul Daly, Director of Exchequer Services, MPS

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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