Following the Money: Carillion collapse offers lessons to NHS over late payments

For some companies, particularly small and medium sized ones, life as an NHS supplier is getting harder.

One of the many consequences of the financial difficulties engulfing the NHS is the knock-on effect on the suppliers that provide crucial equipment and products to hospitals.

It is not uncommon for the following scenario to occur in the relationship between a supplier and the NHS: a trawl through the company’s accounts reveals money is owed by a trust for products purchased; the trust is contacted but ignores or refuses the request for payment; a standoff ensues.

As one supplier told HSJ: “It can leave us with a very difficult decision, because we have our own cost pressures.

“If we say ‘we’ll hold back supplies’ then we risk alienating them, and they can use their buying power by threatening to go to another business.”

The late payment problem

During the last six months, HSJ has published several stories about trusts delaying payments to suppliers.

One provider, Barking, Havering and Redbridge University Hospitals Trust, has particular form in this area and its payment practices over the last few years were castigated in a recent Grant Thornton report.

Tens of millions of pounds were owed to suppliers that had not been paid by the trust for more than six months, which led some suppliers to stop delivering equipment.

Elsewhere, East and North Hertfordshire Trust was fined £600,000 for paying a supplier late.

Just last week, another supplier highlighted six month old unpaid invoices worth more than £100,000 from trusts.

Previous HSJ research has found one in four hospital trusts are routinely paying companies later than the 30 day requirement all public sector organisations must abide by.

This is a threefold increase since 2014-15.

Dialogue needed between trusts and suppliers

No rightminded trust finance director would contemplate delaying payments to any organisation, whether they are from the public or private sector, unless it was a last resort due to untenable pressures on the accounts.

When a trust chooses to delay payment, it usually happens without any sort of discussion with the company in question, according to several suppliers HSJ spoke to.

This is extremely frustrating for them because if a trust is honest and upfront about the fact that its payments will be delayed, it does at least let them know where they stand and gives them a chance to plan for it.

Silence from a trust will lead to the ultimatum from a business threatening to freeze supplies.

But for small and medium sized suppliers such an ultimatum carries less weight because the trust knows it can threaten the company’s business by shopping elsewhere.

Some cash strapped trusts prioritise paying local smaller suppliers over bigger ones, but others will not.

Room for cautious optimism

Companies have, in the past, tried to respond by forming “credit circles”, where suppliers come together and identify the worst behaving trusts – this may be on the horizon again in some areas.

At national level, there are some developments that should give suppliers cautious optimism.

The government’s push to centralise NHS procurement through the new supply chain model should result in transactions speeding up.

Once the new model is in place, trusts will have less opportunity to slow the payment process as they are unlikely to risk alienating supply chain staff who now sit much closer to the Department of Health and Social Care and regulators.

In addition, a rare silver lining of the Carillion collapse is the fact that the issues around late payments have been brought to the attention of ministers.

Last week’s report by MPs into the firm’s demise highlighted several times that Carillion was a notoriously late payer, with companies made to wait 120 days for money owed.

Occasions when Carillion did pay suppliers earlier would only come about if the supplier agreed a discount.

This practice was described by Frank Field, chair of the Commons work and pensions committee, as “displaying utter contempt for suppliers”.

Giving evidence to the inquiry in March, business secretary Greg Clark promised the government would strengthen the regulations to tackle late payments.

Whether the changes, should they materialise, will affect payment practices in the NHS remains to be seen, but the issue has at least been brought into the limelight.