Late payments and how to tackle them

Tuesday 15th August 2017

Small and medium-sized enterprises (SMEs) face many obstacles and challenges on a daily basis, but one of the most difficult and potentially damaging of all is securing timely payment from their customers.

That’s one of the findings of a recent study by Ultimate Finance, which showed that late payments are an issue for the vast majority of smaller businesses.

Four out of five SMEs (81 per cent) said late payments are a problem for their enterprise, while 51 per cent said they would be able to operate more smoothly with fewer late payments from their clients.

While it might seem reasonable to assume that the smallest ventures encounter the most problems securing payment from larger customers, the research suggested this isn’t necessarily true.
Of all the SMEs surveyed, 82 per cent had up to £25,000 worth of outstanding late payments, but this figure rose to an average of more than £30,000 for medium-sized firms.

Almost all companies employing more than 50 people (94 per cent) said late payments resulted in cashflow issues.

Anthony Persse, director of strategy at Ultimate Finance, acknowledged that late payments is “one of the biggest challenges” that UK enterprises face. He also highlighted the “deep misconception” that this is an exclusively small business issue.

“This is not just a case of the bigger boys picking on the smaller guys – cashflow and supply chain management affects every organisation, and should be tackled by the community coming together to support one another,” he added.

How is this problem being addressed?
There has been government action to tackle this issue, including the introduction of the Prompt Payment Code. The Federation of Small Businesses (FSB) recently celebrated the announcement that 32 of the government’s biggest suppliers have signed up to the voluntary programme.

The FSB said this is a “positive step in tackling the poor payment culture that is rife in the UK”. It also called for further action, such as making it mandatory for all FTSE 350 companies to sign up to the Prompt Payment Code.

Ultimate Finance questioned whether government legislation is the right way to approach the problem of late payments to businesses. Mr Persse noted that legal requirements have the drawback of being inflexible, and therefore might not be the best solution to late payments, which “isn’t a one-size-fits-all” problem.

He added: “Both SMEs and corporates are full of intelligent people who understand the challenges better than anyone. They should be the ones to create the solution, with support from government and the wider industry – not the other way around.”

Individual firms can take measures of their own to reduce the risk of late payments. In a report published in December 2016 exploring this problem, UK payment scheme manager Bacs said some firms could benefit from adopting better invoicing practices and making payment terms “absolutely explicit”.

The organisation also pointed out that automated payment systems such as direct debit could help cut down on the time and money required to recover late payments.


Posted by Frances Singer

Image courtesy of iStock/vinnstock

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