Why are we doing this discovery?
The Digital Marketplace has encouraged many small and medium enterprises (SMEs) to start providing cloud technology and digital services to government.To manage their cashflow and growth, these businesses need to be confident that they will be paid for the work they deliver. They need to know how to invoice government and what to do if there is a problem.
Government policy states that central government departments should aim to pay 80% of undisputed invoices within 5 days. The rest must be paid within 30 days. Following the March Budget 2015, all departments must, on a quarterly basis, publish their performance in paying suppliers within these time frames.
It is important that suppliers and government buyers can work well together to deliver great digital services. In April, we started a six week discovery to understand how suppliers are paid for the services they provide to government via the Digital Marketplace. We focused on understanding how suppliers are currently being paid and identifying areas where the Digital Marketplace could help.
Our discovery team
Our discovery included a product manager, a technical architect and a user researcher. We were supported by the Digital Marketplace’s business support and commissioning teams who buy services and manage the supplier relations. Everyone involved in this discovery understood first hand that suppliers getting paid can be fraught and time consuming.
The scope of our discovery
The main user need we focused on was:
“I have compliantly chosen this service/product, please make sure the supplier can be paid”.
We needed to understand how government currently pays suppliers and how suppliers find this experience. We also wanted to research government payment policy and legislation.
Who we talked to
We talked to a range of people across small and large central government departments, agencies and local authorities. This included business area buyers, procurement specialists, requisitioners, finance teams, Enterprise Resource Planning (ERP) system administrators and Purchase to Pay (P2P) specialists.
We also talked to a number of Digital Marketplace suppliers to hear about their experiences of working with different parts of government.
What we learned
Here’s an overview of our findings.
1. How are suppliers paid today for the services they provide to government?
Each government department/agency has their own process for paying suppliers but there are many similarities. For each contract, a supplier will receive instructions on how to invoice, often from the accounts team. Once an invoice has been submitted, the buyer needs to confirm receipt of the supplier’s service. Then the payment can be made. The main differences are in the systems used for this process and the approach to approvals and audit trails.
We found that some of the people we spoke to who are in charge of the processes tend to focus more on the practicalities of their systems, as opposed to the people who will be using them. As they often told us, “The process is fine, it’s just the humans who are the problem”. This clashes with the GDS design principle: “start with user needs”.
Other issues identified included:
- buyers getting a purchase order (PO) number for their suppliers
- suppliers understanding how and where to invoice
- buyers confirming receipt of the services provided
2. Getting a purchase order can take months
In government, invoices will not be paid unless they contain a valid PO number. A purchase order is the confirmation to a supplier that government is formally committed to paying for the service. Our discovery showed that, particularly in central government, it can take many months for a buyer to get a PO for their supplier. If a supplier starts work without one then they are at risk of not getting paid.
3. Understanding how to invoice
We learned that suppliers have to devote a lot of time to understanding what information should be on each invoice, where it should be sent and when it will be paid. This will be different for each department or agency they work with so they need to track it on a contract by contract basis.
Many departments accept electronic invoices but some parts of central government require suppliers to send invoices by post. One supplier told us; “It’s nerve-wracking. I post it in the letterbox but have no idea if it gets there”. Another one said, “Printing out invoices goes against our company’s strong commitment to working in an environmentally friendly way”.
4. A supplier is paid quickly once their invoice has been receipted
We saw no evidence of a delay in paying suppliers once their invoice has been receipted. However, receipting is a common problem. Even in departments or agencies where systems are generally considered to work efficiently, there is often a holdup around receipting. In some departments, teams devote a significant amount of time unblocking receipts. This is the case whether or not notifications are in place to alert buyers to new/outstanding invoices.
For buyers, the systems in place often feel overwhelming. This leads to frustration and can have a negative impact on their relationship with suppliers who are struggling to get paid.
5. Learning about policy and legislation
We discovered that the Treasury’s advice on ‘Managing public money’ contains the following principles for paying suppliers:
- check that services have been provided before paying
- ensure the separation of authorisation and payment
- keep a clear and automatic audit trail
- make audit trails easy for auditors to access
- provide balanced controls to tackle and deter fraud
We’ll keep these principles in mind as we investigate how the Digital Marketplace can help suppliers get paid.
What we’d like to do next
We’d like to investigate how we can help when an invoice is due on a G-Cloud or Digital Outcomes and Specialists (DOS) contract and make it simpler and faster for buyers and suppliers. We want to look at ways to help feed invoicing data into departments’ existing systems as well as opening up contract data to the wider market.
The commercial payment industry is moving rapidly and we’d like to explore ways to work with the payment methods of the future.
We’re working closely with the Australian Digital Transformation Office (DTO) who are also looking to innovate around payments to suppliers. We’ll talk to them and other governments and learn about their plans and strategies.
Finally, we’re committed to making procurement and contracting data more open. We see enormous opportunity here to open up more data on G-Cloud and DOS contracts and support the Crown Commercial Service's commitment to the implementation of the Open Contracting Data Standard (OCDS).