SMEs urged to tackle problem of late payment
According to the Law Society, too many smaller firms are failing to safeguard themselves against the problems posed by late payments.
Recent research has revealed that SMEs are having to wait an average of 41 days longer than the time agreed before receiving payments and a staggering £24 billion is owed to SMEs at any one time, with 37 per cent of late payers take between one and three months to settle invoices.
Additionally, the increase in VAT to 20 per cent is expected to squeeze cash flow still further for SME's.
The Law Society is urging small businesses to guard against late payment. Robert Heslett, the Law Society's president, said: "Average commercial debts caused by late payments are high in the UK, and for SMEs a lack of cash flow can be crippling. With credit less available to those businesses from banks, late payments have a far more serious consequence for SMEs."
We have spoken to a number of busiesses whose experience matches the published figures and we echo the Law Society in encouraging all SME's to review their credit policy and procedures to guard against Late Payments or at the very least, minimise the impact to cash flow and business security.
In our recent newsletter we published our top tips for tackling late payment:-
1. Put credit management at the heart of your business.
Good credit management is not a business function but a holistic principle of healthy business. It creates the expectation that all parties to a contract will do what they've said they will do. Make sure all your policies and practices are geared towards receiving your money on time. Discuss and agree terms and conditions up front when you sign the contract. Send out your invoices on time. And chase payment as soon as it is late.
2. Get buy-in from the top.
This way of working has to come from the top: a credit controller can chase payment, but if the director of the company isn't willing to enforce payment terms, then the stated consequences of late payment become empty threats. The credit controller might be the person who chases the overdue invoices, but responsibility for prompt payment should be a concern across the whole business, for the sake of future stability and growth.
3. Bring in a credit control expert.
Ideally, you will have someone within your business whose core responsibility is credit control - as opposed to somebody who chases late invoices as and when they have time (meaning they're often too busy to do it). If you don't have the resources to employ someone full time, consider bringing in an expert who can assess where you most need to focus your efforts, who can help minimise your losses from bad debt - and preserve that all-important cash flow.
4. Prove you are a prompt payer.
Sign up to the Better Payment Practice Code - a way of showing your customers and clients that you support best practice when it comes to paying invoices. You can use the logo in your marketing materials - and other companies can search a database for like-minded business owners who take prompt payment seriously.
5. Name and shame.
OK, maybe this is a last resort. However, if you don't want to suffer in silence, then you could go public via one of the business organisations that names and shames companies that consistently pay late - or who have changed their terms to disadvantage their SME suppliers. The Federation of Small Business produces annual league tables detailed which big companies are guilty of being late payers. And the Forum of Private Business publishes its Late Payment 'Hall of Shame'.
For more advice and coaching on making credit management work for you or to sign up to our newsletter, email me at email@example.com or phone me on 020 8656 0088