May 19, 2020

Xero insight: How technology is changing the late payments culture

Fintech
Xero
PSD2
Edward Berks
5 min
Xero insight: How technology is changing the late payments culture

Edward Berks is Director of Platform Business at Xero, leveraging Open Banking and PSD2 to realise the next generation of services for Xero customers. He is also passionate about enabling success for small businesses and brings first-hand experience of the challenges faced by entrepreneurs.

Late payment is one of the biggest issues facing small businesses today. Analysis from Xero’s Small Business Insights platform shows that over half of invoices issued by our small business subscribers are paid late, resulting in 54 per cent of these businesses starting the year in negative cash flow.

However, this is not just a business issue. With almost 6mn small businesses in the UK, we all either run a small business, work for a small business, or are close to someone who does. The impact of these late payments on physical and mental health is considerable, and it’s reaching a crisis.

According to research we conducted with PayPal recently, in the last 12 months, over half of small businesses have raided their personal savings or been forced to borrow from friends and family, to keep their business afloat.

The Government has made steps to level the playing field. This includes taking steps to ensure big businesses improve their payment practices. The office of the Small Business Commissioner was set up to look at late payments and there has been a consultation on whether to make a board director responsible for creating better payment practices. These are good ideas, but it’s clear there is still a problem.  

The scale of the issue

Xero’s Small Business Insights shows that the average British small business is owed £24,841 in late payments on any given day. This equates to 11 months’ average staff wages, or almost 10% of the average turnover of a small business, suggesting that the UK’s small business economy as a whole is burdened with £141bn of late payments.

In the days when invoices had to be physically passed between different departments, there might have been an excuse for this. But not anymore. The question company boards must ask themselves is: is it appropriate that they are using their small suppliers as a source of finance?

The impact

Poor cash flow can force small business owners to live invoice-to-invoice and spend their time chasing debtors, with no ability to plan and creating insecurity for employees and creditors. And due to late payments, it is estimated that some 50,000 small businesses fail each year due to cash-flow issues - according to data from the Federation of Small Businesses.  

Late payments can damage a firm’s credit score, making it increasingly harder to raise funds and in turn affecting the firm’s financial profile. Small firms already find accessing finance difficult, so having to deal with late payments only makes matters worse. According to research, 62 per cent of small businesses don’t think they could survive more than three months if their outstanding invoices were left unpaid.

Improving national productivity means helping companies to get access to finance and addressing late payments which tie up working capital and stifle innovation. These issues go right to the heart of the productivity debate in the UK today and ultimately have a knock on effect on the wider economy. 

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The solution 

Whilst changing the payment habits of your customers might not always be possible, small business owners can take simple steps to remove some of the barriers that create late payments. Be clear with clients about the importance of getting paid on time, so you can survive as a business - and pay other stakeholders. Terms are there for a reason, so consider implementing interest charges on late payers to try and break bad habits.

The good news is that there is a progressive awakening  as businesses create policies on the environment, diversity and responsible business. And the next to be added to this is payment culture. Businesses need to have a cultural mindset shift which prioritises paying bills on time.

It may sound obvious, but the easier it is to pay an individual or business, the quicker you’ll pay. Bringing a great billing and payments experience to your customers should be a high priority for every business - a difficult or technical process will only encourage those who owe to put off payment for longer. 

For those that already use cloud accounting software, you can add payment services directly to online invoices to give customers more ways to pay and see when it’s been opened and viewed, and send automated reminder notices. Data from Xero shows that invoices with a ‘Pay Now’ option, to take credit card payment with Stripe or to easily set up a Direct Debit with GoCardless, get paid typically in half the time of those that don’t.

Quicker, simpler payment has enormous value to any business, so it makes sense for accountants and bookkeepers to improve their client’s cash flow by using software and apps to tackle late payments. This will also give businesses and their advisors time back to focus on the things that matter - like building strong relationships and focusing on growth. 

Tackling the issue of late payments is vital in enabling small businesses to reach their full productive potential and improve not only the growth of their business, but the growth of the UK economy at this critical time.

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Jun 13, 2021

Why we need more female CFOs (and how to reach that goal)

CFO
Finance
Executives
women
Kate Birch
12 min
Four female global financial experts weigh in on why there are so few female CFOs, and what organisations can do to redress the boardroom gender imbalance

The number of women in CFO positions in Fortune 500 companies reached a record high late last year, hitting 90, up from 65 just a few years ago. It’s not surprising given the increased focus in recent years on C-suite and board parity by investors such as Blackrock, as well as other institutions including the Nasdaq, which recently stated that companies listed on its US exchange will need to have a minimum of two non-white or female Board members. And if they do not, they must publicise the reasons as to why.

The picture is similar in the UK. According to Julia van den Bosch Wazen, CFO Practice consultant at Odgers Berndtson, The Financial Conduct Authority in the UK is now looking to the London Stock Exchange listings framework as to whether similar measures ought to be implemented, while for City firms, “there are already ongoing discussions about potentially using wider FCA powers, such as denying regulatory approves to drive diversity on Boards”.

But while there’s certainly been improvement, the under-representation of women in executive finance positions remains less than rosy, with van den Bosch Wazen admitting that “whilst much has been done, we are still of the view that progress is too slow”.

Still too few women make CFO

According to the government-backed Hampton-Alexander Review, of which Odgers Berndtson are active contributors, while women now make up one third of all board positions in the UK’s FTSE 100 companies, up from 12.5% less than a decade ago, there remains a concerning lack of female representation in senior leadership and key executive roles in FTSE companies, with just 15% of finance directors bring women.

“One of the Big Four partners informed me that their annual graduate intake split is around 52% women, 48% men. By the time this age group reaches their early thirties, the number goes down to 34% women,” explains van den Bosch Wazen. “Since many CFOs of listed businesses in the UK take the audit route, before moving into industry, the disparity of diverse talent coming into the market starts early and is not able to catch up later.”

Recent McKinsey research for its Women in the Workplace report for North America backs this up. While research shows that women and men in financial services begin their careers making up roughly equal portions of entry-level staff, once you get higher up the ladder, women account for only 19% (one in five) of positions in the C-suite.

The research suggests that as women advance through their careers, they steadily lose ground to their male peers at every stage, suggesting the pathway to the CFOs office is not as clearly illuminated for female candidates.

Why women make good CFOs

And yet the evidence suggests that when women do make it to CFO, the payoff for organisations is positive. Companies with female CFOs and CEOs prove more profitable than those led by men, with women-led firms generating US$1.8 trillion more in gross profit than the sector average, according to a report by S&P Global.

Furthermore, as van den Bosch Wazen points out, according to McKinsey’s latest Diversity Wins report, companies with more than 30% of women executives are more likely to outperform companies where this percentage ranged from 10-30%.

“The benefits speak for themselves and I’m thrilled that investors are pushing harder for this,” states van den Bosch Wazen. “The more diverse your management team, the more engaged your workforce, and the better your customers are looked after. You are better informed of the world, you tend not to miss trends, making your balance sheet strong and your organisation run more efficiently.”

Cristina Catania, Partner at McKinsey & Company agrees that gender diversity “enriches decision-making and so has a positive impact on companies’ performance and sustainability”, however more specifically, and in the context of the finance function, she points out that studies have found that “women have higher risk aversion than men and that can be a good thing”.

Maggie Xu, Principal of Greater China Financial Services Practice at Oliver Wyman, agrees suggesting research shows that female CFOs are more risk averse and tend to adopt more conservative accounting policies. And for “those companies/industries with higher litigation risk, default risk, systematic risk, or management turnover risk, who are more focused on accounting conservatism, female CFOs may well do a better job”.

Arguing that women are “equally qualified to effectively address current and future challenges and disruptions”, Hanady Khalife, Senior Director of MEA & India for the Institute of Management Accountants further points out that beyond operations, inclusive working cultures where women leaders exist have been known to attract and retain top talent.

“No matter how you look at it, women leaders are good for business and for building more sustainable, self-sufficient and increasingly shockproof businesses, even economies,” asserts Khalife.

In our roundtable, we talk to these four female financial leaders to identify the barriers facing women and discover how organisations and leaders can facilitate their advancement.

International panel discussing women as CFOs

Julia van den Bosch Wazen
Consultant, Odgers Berndtson’s CFO Practice

Maggie Xu
Principal, Greater China Financial Services Practice, Oliver Wyman

Cristina Catania
Partner, McKinsey & Company

Hanady Khalife
Senior Director, MEA & India Operations, Institute of Management Accountants

Why are women under-represented in senior financial positions, and the CFO role specifically?

Julia van den Bosch Wazen, Consultant, Odgers Berndtson’s CFO Practice: Women in key financial management roles tend to have a shared set of challenges, such as balancing home/work life, which is overcome by having the right support and an engaged sponsor at work. Sponsors are often men in senior management positions. Men are essential in furthering the development of all strands of diversity in the workplace, and the more informed diversity and inclusion allies there are, the better the company performs. COVID has forced the majority of companies to work from home and highlighted to many employers the dual nature of a working woman’s careers. That said, pre-pandemic, many female CFOs said to me that their life was a constant balancing act of whom to disappoint more – their partners, kids, or friends. Senior women rarely disappoint their employers, just like their male peers.

During the executive search processes we run, Boards will actively seek diversity, though in a risk adverse hiring market, like the one that we are in, many end up choosing proven Board experience over and above stepping up talent. It is widely publicised that there are more men in those roles than there are women, and so the balance is again not restored, further facilitating the lack of Board experienced women.

Cristina Catania, Partner, McKinsey & Company Unfortunately, this under-representation of women in senior roles isn’t exclusive to finance – it’s a similar picture in business management and strategy. But, prior to COVID, concentrated efforts were making some gains. Across all industries, we’ve seen women’s representation in the C-suite increase by 24% since 2015, including some notable appointments in the financial sector, like Jane Fraser at Citi. There is, however, a broken rung at the very bottom of the corporate ladder that is stalling progress.

Our annual Women in the Workplace study of women in North America shows that for every 100 men, just 72 women are promoted and hired to manager. Women get stuck at the entry level and fewer become managers. Not surprisingly, men then end up holding 62% of manager-level positions, while women hold just 38%. The number of women decreases at every subsequent level, so despite improved hiring and promotion rates for women at senior levels, they aren’t able to catch up.

Hanady Khalife, Senior Director, MEA & India Operations, Institute of Management Accountants One would assume this is a problem most prevalent in the Middle East but it is global. A National Bureau of Economic Research study from Denmark found that even at the height of their careers, women tend to spend more time raising children, and so work fewer hours, take longer breaks from full-time employment, and are more likely to move into less demanding jobs with lower growth and less pay.

Other reasons include the pay gap, lack of mentorship and coaching, and aggressive competition by male colleagues, as well as lack of female C-suite role models. When women don’t see role models or potential paths towards executive-level leadership, they are more likely to deselect themselves out of such roles.

Maggie Xu, Principal, Greater China Financial Services Practice, Oliver Wyman In research, we identified four critical barriers for women seeking leadership. Firstly, men and women define effective leadership differently, while women leadership candidates tend to be evaluated by men. This misalignment in key leadership traits between the genders creates obstacles to women rising to leadership roles. In China, although significant increase in the ratio of companies with female executives has been observed during the decade, extensive research indicates that the rate for female CEO remains very low, and CEOs are critical in assessing the performance of CFO candidates.

Secondly, women’s focus or predisposition toward results, along with a dislike of ‘networking for networking’s sake,’ may cause them to miss an important dimension of what ultimately impacts leadership promotion decisions. We also discovered that qualified women are unintentionally left on the sidelines, partly because women are simply not top of mind, and so are less likely to self-advocate and must battle inaccurate assumptions related to their willingness to take on more intense roles.

Also, men and women perceive their readiness for the next role very differently, and most companies do not actively mitigate that bias at play. A woman often won’t apply to a job unless she feels she meets 100% of the described qualifications, while for men, it’s more like 60% and as we all know, raising one’s hand does not necessarily equate with capability.

Finally, research shows women are more likely to have ideas mis-attributed to others, be talked over in meetings, receive vague or unconstructive feedback, and be viewed negatively for visibly demonstrating the same confidence that is valued in male leaders. Many high potential women, weary of bias, exit the talent pipeline, either opting out of the workforce or choosing a different career.

How can organisations and leaders motivate, empower and facilitate women in reaching CFO status?

Julia van den Bosch Wazen Mentorship from senior colleagues is vital in helping women to navigate the mid-point of their career. Our philosophy in the CFO Practice facilitates that same ethos: we want to help advise women early on to help build careers toward the three-stage interview process they will face when stepping up to their first Main Board role. A financial management career for a listed CFO role needs to be built to answer the questions a CEO will pose (do you have commercial and operational P&L experience to be my partner in setting strategic goals); the Audit Chair (will you give me comfort in your technical financial management skills to assure that the business will not have to restate its numbers); and the Chair (do you keep my CEO ‘in check’, and will you let my Audit Chair rest easy at night).

There are a number of roles within the finance function I strongly encourage women to take en route to Board, to gather experience against the above criteria. I also urge women to do more external networking. I’ve set up bi-annual women’s networking lunches giving senior female talent the opportunity to hear how experienced finance leaders have successfully developed their careers. These have been well-received and have now broadened out to both our Regional CFO and Financial Services Practices to help deepen the advice shared.

When selecting a headhunting firm, I would urge that you ask what they are doing to support the D&I agenda during the pitch process. Your candidate list might well be diverse, but if you see that those who are looking likely to be shortlisted are all non-diverse, check why, and what can be actioned based on feedback.

Cristina Catania Talent attraction is the first step to sustaining a pipeline to fill CFO roles long term. For finance, there is a need to create multiple role model examples to inspire young women to join this career path, which is increasingly at the centre of key company decision-making. We know from our study that when employees believe that their company offers both fairness and opportunity, they are three times more likely to remain at the company, be fully engaged and recommend the company to a peer. What we know about the experiences of women at entry levels in financial services indicates that a perceived lack of fairness and opportunity could be contributing to the steep drop-off in female representation between entry-level and middle management roles.

Specifically, women early in their careers are less likely to aspire to top positions. This could be due to a lack of female role models, but women also report less interest in executive roles due to concerns about balancing work and family and the perceived pressure that accompanies top jobs. Even when women do aspire to the top positions, they typically do not receive the sponsorship support that would enable them to succeed.

Our 2017 Women in the Workplace research shows that women who receive advice from senior leaders on career advancement are more likely to be promoted, and yet earlier-tenure women receive less encouragement and support from senior leaders than do their male counterparts.

The programmes that are showing impact in creating a sustainable pipeline of women start with the creation of a more ‘inclusive’ workplace, created through HR parental policies (applicable also to fathers, which in turn allows for shared parental responsibilities) and doubling-down on additional welfare services like in-office daycare.

Other measures include removing gender biases in assessing criteria for being eligible for a promotion, flexibility arrangements, leveraging maternity as an upskilling moment, the introduction of sponsorship programmes, and measuring and publishing target setting. And all steps need to be truly sponsored and promoted by the CEO and cascaded throughout the whole organisation.

Hanady Khalife Increasing opportunities for women to advance to leadership roles in the organisation begins with understanding the internal pipeline to identify barriers and obstacles to advancement and in turn, establishing measurable goals for building equity.

Organisations need to develop corporate cultures that support women who wish to achieve a healthy work/life balance, rather than breed cultures that penalises them for attempting to balance priorities. But while firms need to focus on more affirmative action to ensure gender equality, whether through quotas or recruitment programmes, they also need to pay more attention to how women can be mentored better to keep pace with new and emerging industry requirements. 

Maggie Xu Organisations can be more purposeful in levelling the playing field for women, and by changing the emphasis from fixing things bottom up to top-down, effects will take place faster. We believe there are three core elements in this effort: inclusive leadership starts at the top, so educate your existing leadership and motivate them to be change agents; target D&I like a business to get more results; and double down on sponsorship, improving the effectiveness of senior leaders’ sponsorship of the women.

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