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All of the 2023 DBA Design Effectiveness Award winners’ results and full case studies can be viewed here.
It seems to be increasingly the case that companies, especially big ones, are pushing their working capital requirement onto their suppliers by imposing long payment terms on them and then not paying to those terms. Ironically, these same companies are often the ones insisting their suppliers work to improve their ESG credentials.
Payment terms historically used to be 30 days after the date of invoicing but suppliers are increasingly being asked to agree to much longer payment terms as per the real life example above. It is often hard to understand why these companies do this. Surely they are big enough to pay everyone on shorter payment terms.
But look at it from their point of view. In the example of a white goods manufacturer they may be making goods in somewhere like China, shipping them to a warehouse in the UK, distributing them to their client’s distribution centers and then waiting 90 days for their clients to pay them. All the time they are paying out money long before they get paid by their clients.
It is easy to see why companies like this try to pay their suppliers as late as possible. However, they can only do this to the extent that suppliers are able to cope. It is a commercial balancing act between having reliable, good quality suppliers versus ensuring their working capital requirements can be met. If payment terms are too long they will struggle to find reliable suppliers willing/able to work to those terms.
The fact that payment terms are a commercial decision means they are negotiable. It is a commercial decision for both parties to agree to and should be seen in the context of the overall commercial decisions e.g. price, timelines, deliverables etc. It may well be right to agree to a reduced price for shorter payment terms, or a way of defending against lower prices by agreeing to longer payment terms. The point is, it is negotiable.
There are multiple reasons why payments may not be made in accordance with agreed payment terms. As often as not, especially with big companies, it is a problem of process rather than a lack of willingness (or inability) to pay. On saying that, any delay in payment is to the benefit of the client and detriment to the supplier.
The process issue could be to do with the client’s processes. In order to get approval for a purchase order, there may be multiple layers of approval required. It only takes one person in the approval process to be on annual leave for the process to be delayed. Also, it is often a task that clients are not fond of doing. They may be under time pressure to deliver and therefore put off raising the purchase order until absolutely necessary. They won’t necessarily think of the impact on the supplier.
On the other hand, the issue could be with the supplier’s processes. Starting work without a purchase order is always going to be a risk and it is often difficult to insist on having one before starting. Alternatively, the instructions provided for invoicing are not followed. Maybe the wrong address is used, the invoice is not being sent in the subscribed manner or the invoice doesn’t quote the requested information. These issues can be especially problematic as often a supplier doesn’t find out there’s an issue until they chase for payment.
In order to minimise late payments, it is important that everyone involved understands what is required. If, however, the client is delaying as a way of increasing their working capital it is important to have a clear policy on credit control, how and when to escalate and having a clear and honest discussion with the client. It is also worth ensuring that any contract is very clear about the ownership of any Intellectual Property. This should only ever transfer once payment has been received in full.
As the saying goes “Cash is King.” It is vital in a commercial relationship that everyone understands the implications of the entire agreement, including the flow of money. The real issue is when big companies agree terms and then deliberately pay beyond the time that has been agreed. This is happening all too often and action needs to be taken against such companies. At the very least they should be named and shamed but there is also a role for governments to ensure there is a legal framework in place to discourage companies from taking advantage of smaller suppliers for their own gain.
There was much, much more covered in the hour – you really had to be there. Do make sure you join us in our next DBA Members’ Forum on Monday 4 September at 4pm BST, look out for an email from Deborah in a few weeks with more details. If you would like to attend, get in touch here.
It’s been over two years since Modern Recipe changed the face of Sodexo’s corporate canteens and won the DBA Design Effectiveness Grand Prix Award. Briefly remind us about the original objectives and impact of the project.
Philip Koh: Sodexo provide corporate services to some of the world’s leading businesses. Their B2B approach however, focused on the corporate client, was struggling to connect with staff increasingly distracted by the high-street. As success began with happy customers using the space, we started with the end user: creating a modern, flexible, all-day brand that would connect with today’s professionals. This, in turn, became inherently appealing to forward-thinking facilities managers.
The impact of the new brand was clear. Immediately after launch, we saw a sustained 45% increase in utilisation, 13% increase in average transaction value, and within 6 months, the brand was winning a host of new multi-year, multi-million pound contracts with blue chip corporate clients.
What did the win mean to Without and how has it impacted on your business since?
PK: Without has always been an agency that delivers design not just for style, but for impact. The work we do works – whether for challengers looking to break into new markets, or global brands looking to confound expectations, our thinking solves problems effectively. So the Design Effectiveness Awards, with its panel of business experts, has always been one of the most important for us. And to win the Grand Prix – it’s something we’re very proud of.
After the award win, it is clear that we’re having much deeper, strategic conversations with potential clients – the credibility that the award bestows has been really helpful in this regard.
Anecdotally, we know that clients do look at award lists for reassurance, and for us, this award is one of the best at establishing the value of our work.
And because this is an award for the client as much as it is for the agency, we’ve seen a positive impact within the client organisation itself. A pride and confidence in the new brand, greater commitment to its growth, and much deserved recognition for the forward-looking individuals who took the bold decisions.
Modern Recipe has gone from strength-to-strength. Bring us up to speed on recent developments?
PK: Our original brief was to reimagine corporate catering and re-establish canteens as vibrant, valuable assets for Sodexo’s UK market. But the result, Modern Recipe, has been so successful in the UK that it’s been quickly adapted for the US market. With Sodexo’s North American team, we’re developing and evolving the brand to address not just the cultural nuances of the American audience, but to retool the brand kit to address wider markets – from corporate, to university and healthcare sectors. It’s now being rolled out across 300 client sites in the US – at a pace we could barely have imagined when we started the project.
In your view, how has entering and winning in the Design Effectiveness Awards influenced this success and your relationship with Sodexo?
PK: It’s worth re-emphasising that the DBA Design Effectiveness Award is a joint award, for both client and agency. Entry into the award is itself a joint effort, and a successful entry requires collaboration. Simply making an entry together is a commitment to a deeper relationship, trust, and alignment with the client’s ambitions and goals.
We’ve found that in entering and winning the award, we’ve demonstrated our focus on our client’s success, and this has helped build trust and credibility across their organisation. It’s opened doors to new conversations and new projects, one of which, a new product tackling the challenge of nutrition in schools, we hope will be a DBA Design Effectiveness Award winner of the future!
Has it impacted the way you work with other clients too?
PK: We’ve always approached projects with our clients’ goals front and centre, and our strategic and design processes have been honed over the years to focus on effectively harnessing creativity to deliver commercial outcomes. What the DBA award has taught us, is how to better track, measure and account for that success. It’s a long-term way of thinking with which we approach every client project.
Also, the rigour with which the tracking, measuring and accounting is done is critical in demonstrating the value that design brings, and that can only be a good thing for our industry. Design is often undervalued – creativity isn’t easily accounted for in a budget line – so the DBA Design Effectiveness Awards plays a really important role.
The call for entries for the 2024 Awards is now open. The entry deadline is 5pm GMT 3 November 2023.
You can also book a consultation with the DBA’s Strategy and Business Director, Sally Lukins on Calendly here.
These consultations are opportunities to discuss all things design effectiveness – from thinking through what might make a good entry to submit to the DBA Design Effectiveness Awards, to discussing working drafts of your entry case studies, or having a conversation about the practices within your business that would support a focus on creating effective outcomes and proving the impact of your work.
Without is a brand design studio helping pioneers define their difference. Founded by a historian and an engineer, Without understands the power of difference to defy, define and create categories. Since 2005 Without have helped beloved brands like Third Space, Savoir and Caravan to grow, build community and make life better, and in 2021 won the highest recognition of design effectiveness – the DBA Effectiveness Grand Prix.