Local Government and Early Pay – Facilitating the Future of Public Sector Payments
From road maintenance to social care, councils’ responsibilities are wide-ranging and complex. To deliver the essential services every community deserves and requires, local authorities work with a diverse array of suppliers. That means they spend a considerable amount on procuring third-party products and services.
In 2021 alone, councils spent £70 billion with third parties. This represents a 7% increase on 2020’s spending. Both figures highlight just how important third parties are to local government service provision and the key role procurement and commissioning play in councils’ ability to deliver those services.
As an organisation committed to reshaping the way people think about payments, in particular SME payments, Saltare finds the relationship between councils and their suppliers full of potential. That’s why we are exhibiting at this year’s County Council Network (CCN) Annual Conference and dedicating this blog to examining the interplay between council service provision, payment processing, and our product, Early Pay.
In this article, we explore how councils can use a digital early payment processing solution to benefit local businesses and the communities in which they operate. Taking three influential local economy whitepapers as our starting point, we show you how Early Pay can contribute to efficient service provision and a healthier relationship between key factors in the community.
But, first things first, let’s provide a little context.
CCN and the role of Early Pay
The CCN comprises 36 local authorities and is England’s largest association of councils. Its 2,600 councillors represent around 26 million people, cover 86% of the country’s landmass and are responsible for 39% of its GVA (CCN). In other words, they are instrumental in determining how local services are provided for a significant percentage of the country.
The CCN Annual Conference (20th to 22nd of November 2022) is an opportunity for those councillors to convene and share information, ideas and research. This year, the conference will focus on the following topics:
Delivering economic growth
Local government finance
Adult social care and children services
We strongly believe Early Pay can help councils tackle many of these challenges and achieve their main aims.
Emphasising the local
In August 2022, Locality and Lloyds Bank Foundation released the Principles in Practice report. Based on extensive research, the report examines how local authorities can build long-term partnerships between councils and the people and organisations they represent, while also unlocking the power of community.
Much of the Locality report expands on research conducted by the New Economics Foundation. This key paper was entitled Plugging the Leaks and focused on maximising value from local government spending. Finally, the Localis report, True Value, has also provided invaluable information. These three reports are the foundation on which we built this article.
At Saltare, we believe local authorities and businesses must work together to deliver value to their communities and generate economic growth. To do so, they need a comprehensive set of tools that facilitate relationship-building and reward investment in local services.
Digital innovation is vital
Commitment to innovation is central to the Keep it Local philosophy. Locality’s report makes it clear that finding new ways of working and developing strong connections between councils and regional suppliers is essential to stimulating the local economy. This is relevant on several levels.
First, faced with severe budget restrictions and public sector funding cuts, councils are struggling to deliver the services their communities require. In many instances, they are being asked to do more with less. This is not a problem that will simply disappear.
While working within these limitations will always be tricky, there are ways to relieve the pressure. Most notably, digital technology. Digital automation technologies, like Early Pay, drive efficiencies and reduce costs, while allowing employees to focus on more nuanced and valuable work.
In the case of Early Pay, automated early payment offer processing ensures council employees do not have to devote time to setting up, managing and processing early payment rebate calculations. It turns a labour-intensive process into one that is more time efficient. It saves councils money and streamlines their operations.
New ideas mean a fresh approach
Innovative solutions as a whole (not just digital technology) are important. Councils must explore new ways of delivering services and challenge procurement orthodoxy to ensure their choices represent maximum value for money. The Principles in Practice deals with issues in great depth.
Keep it Local researchers argue “big outsourcing contracts” that are justified through appeals to economies of scale “lead to tick box, one-size-fits-all services, that don’t deal with people’s problems at source.” On the contrary, they often artificially inflate service demand by creating failure demand – “demand caused by a failure to do something or do something right for the customer.” (Locality)
In other words, large-scale, outsourced services cannot resolve issues because they cannot provide relevant and targeted solutions that meet the complex needs of local people. Instead, they refer the individual to another service. This leads to people bouncing around the system until they fall between the cracks.
The NEF report goes on to argue that “residents don’t all think alike, and no two communities have the same views on an issue… local people can, and need to, find strategies that are appropriate to their area.” This encourages a local by default approach that recognises every locality is different and needs to be treated as such.
Local businesses provide better services and stimulate the economy
At the heart of the local by default argument is the idea that local businesses and community organisations are more equipped to harness local relationships to offer tailored support to residents. They understand the nuances and complexity of local problems and are better able to prevent them. Local businesses can provide services that resolve, rather than refer, and they minimise failure demand. Essentially, choosing to work with local SMEs improves public service provision.
But there are economic benefits, too.
When councils partner with local businesses, public money is injected back into the local economy. Studies show that every pound a council spends on a community organisation (a local business, community group, or charity) creates £2.50 for the local economy (Locality). By employing local people and utilising local supply chains, council spending on local suppliers stimulates and grows the local economy.
At a time when many SMEs are struggling, councils have the opportunity to step up and provide support by investing in their products and services. However, this is not a handout. It is beneficial for all involved. Councils deliver more effective and targeted services, while local suppliers benefit from additional business and investment.
Early payment means additional help for local businesses
However, councils can go further than using local businesses to provide services. They can also empower and benefit them by guaranteeing their cash flow via early payment offers.
One of the biggest problems SMEs face is late payments. Currently, UK SMEs spend around 900,000 hours every day chasing payments (Tide) and approximately £200 billion is locked up in unpaid invoices. Late payments affect three in five SME owners (Barclays) and one in three UK businesses report that late payments threaten their survival (Time Finance). A recent Xero and PayPal study shows that British businesses are owed an average of £23,360 in overdue invoices.
Councils can play a role in alleviating this problem by ensuring payment is, at the very least, made within the agreed terms. They can also utilise payment tools, like Early Pay, to provide small and medium sized businesses with more certainty and protect their cash flow. By ensuring SME business owners know when they will receive payment, councils give businesses the security they need to invest in their organisation, guaranteeing their future and facilitating growth.
The impact of early payment on individuals’ health
The impact of early payment and the ability to better manage cash flow does not stop at economic growth. Small business owners in the UK are facing a mental health crisis that we can largely attribute to the uncertainty surrounding late payments. 88% of people who run micro-businesses (less than ten employees) worry about late payments (Brodmin). 17% of all business owners say late payments undermine their confidence in their professional abilities (Pay UK).
Late payments cause SME owners sleepless nights and result in stress, anxiety, depression and extreme anger. One in nine business owners has considered accessing professional support to help cope with their anxiety over late payments (Pay UK). Combine this with the emotional toll of the current cost-of-living and energy crises, and you have a commercial environment that is not conducive to small business success or happy and healthy lives.
Mental health issues also directly affect physical health. High stress levels can result in severe health problems like heart disease, while exacerbating conditions like asthma and gastrointestinal disease (Mental Health). In turn, this places an even greater strain on public health services.
By using payment processing tools like Early Pay, councils can play a part in tackling the root cause of these health issues. Small business owners do not necessarily want reduced payment terms. They want certainty. They want to know when they will receive their payment so they can plan accordingly.
With Early Pay, once the council approves a supplier’s invoice, it can also offer to pay early and receive a small discount for doing so. There is no obligation to request or accept the discount offer. Either way, the supplier knows exactly when they will receive payment.
Using Early Pay to prioritise local businesses
Local authorities can chose to use the Early Pay discount feature to prioritise local businesses and generate additional savings that it can reinvest in local services. It does so by enabling councils to segment their suppliers and distinguish between local companies and other businesses.
With local suppliers, councils can choose to provide early payment and request no discount. This provides local businesses with the highest level of support and helps build strong relationships between councils and local SMEs. For companies outside the local area, councils can choose to offer early payment in return for a small discount on the invoice. They can then use this discount to reinvest in local services, such as Social Care and Adult and Children Services.
Early Pay helps councils cement their relationships with suppliers by providing certainty and treating them with respect. Local businesses benefit and councils generate significant social value by strengthening communities and helping local people prosper.
We believe strategic partnerships between local government and SMEs are key to economic growth and improved service provision.
By using Early Pay to facilitate payments to local suppliers, councils achieve three things. They:
Stimulate the local economy and support levelling-up through investment in community businesses.
Encourage a local by default approach that results in improved service provision and delivering social value for the community.
Financial benefits achieved through potential early payment discounts. Plus operational efficiencies as a result of reduced inbound invoice queries
But these are only the headline benefits.
Working with local service providers strengthens communities and engages the local workforce. Adopting early payment processes tackles the root cause of many business owners’ mental health concerns. And opting for local suppliers and implementing early payment practices secures local authorities’ supply chains.
For councils, early payment processes and tools are just one part of the solution. But they are a positive and powerful step toward more rewarding public-private relationships and a system that recognises small and medium sized local businesses can, should and must play a part in delivering essential services in the future.
If you want to learn more about how Early Pay can benefit your council and local small businesses, please do not hesitate to get in touch and speak to our experienced and knowledgeable team. We look forward to hearing from you.