Nearly A Quarter Of UK Businesses Say That Late Payment Is A Threat To Their Survival – But What Can Companies Do To Prevent This?
It is a worrying trend that is slowly becoming the norm for many businesses in the UK – late payment. Although there are always going to be genuine reasons for payments being delayed by a few days, it seems that larger corporations have been leveraging their influence and making smaller suppliers wait weeks for payments for their products and services.
With many companies seemingly reluctant to pay their suppliers within the required timeframe, recent news has shown that SMEs are the ones that have been the ones feeling the impact of this butterfly effect of payment delays. This was highlighted in research from insolvency specialists Begbies Traynor who found that 115,000 UK firms were forced to wait an average of 57 days for payments, with this delay even causing 1,000 businesses to go bust last year.
From this, it is clear that poor payment practice can often leave businesses struggling, causing many to become susceptible to financial issues such as increased cash flow problems or, in the worst cases, insolvency. This new study also echoes the government’s own research last October, that found nearly a quarter of UK businesses said that late payment was a threat to their survival. Further supporting this, research from the Federation of Small Businesses (FSB) last year shows that 37% of small businesses have run into cash flow difficulties, with 30% forced to use an overdraft and 20% citing a slowdown in profit growth because of late payments.
As late payments continue to stifle growing businesses, the UK economy is feeling the adverse effects as a result. The FSB have previously stated that tackling the problem of late payments could add £2.5 billion to the UK economy and keep an extra 50,000 businesses open each year. However, despite the government’s efforts to tackle this issue, it seems that large businesses are still ignoring their obligations to smaller suppliers.
Prompt Payment Code – Attempting To Negate Late Payment Culture
With the aim to level the playing field for smaller businesses and get larger businesses treating their suppliers fairly, the government introduced the Prompt Payment Code (PPC) over a decade ago. The terms of this requires firms to pay 95% of their supplier invoices within 60 days. Through the PPC the government is supposed to set the standard for businesses with regards to payment timescales however, based on the Begbies Traynor study, it is evident it hasn’t been working. Based on the average, it seems that some businesses are either waiting till the very end of their 60-day grace period or missing the timeframe altogether.
To help enforce the PPC, ignoring the legislation carries serious sanctions for businesses, as well as lowering the chance of offending businesses winning government contracts. Just last month, the government also toughened up on their sanctions, naming and shaming the businesses that had been suspended or removed for failing to comply with the PPC. Organisations included in the list featured hallmark names such as Vodafone, British Sugar and Twinings Tea.
This latest action shows that the government are taking a stand against big businesses, punishing those who fall short of the PPC. So, we know the government along with the FSB are fighting those businesses that continue to make late payments to their suppliers, but what can UK businesses themselves do to ensure that they get paid on time?
Quick Wins To Help You Get Paid On Time & In Full
The first step towards eliminating late payments begins with a structured and varied invoicing process. With today’s B2B trading, relying solely on the traditional methods of sending letters or arranging phone calls is simply not enough when it comes to collecting outstanding debts.
Any business knows just how difficult it is chasing payments and contacting customers to pay their outstanding invoices, which is why it is so important to give the customers the means to be more pro-active. By using a payment handling portal, businesses can encourage their customers to take this easy, self-serve approach. By making it faster, simpler and more convenient for customers to make invoice payments, you will find that clients will naturally make more payments on time.
In addition to this, it is also important to maintain good customer relationships and keep track of previous interactions, so that less time is spent ineffectively chasing down customers for payment. Through using a CRM system, businesses can add structure to their invoicing and debt chasing activities. By using the history of conversations stored and enabling contact to be scheduled, businesses can limit debt chasing to only the appropriate times for the customer. This in-turn will help them to achieve a better on-time payment success rate.
Avoid Late Fees By Getting Customer Payment Terms Right At The Start
However, getting paid on-time isn’t just about the invoicing and post-service payment chasing, it is also about getting payment terms correct to begin with as well.
During pre-contractual discussions, businesses need to set out the terms and expectations in advance so that they can achieve accurate control over their cash flow management. By pre-empting cash flow fluctuations alongside what suits the business’ growth, businesses can set out invoice payment terms clearly in line with these factors, effectively eliminating the possibility of late payments.
After the terms have been discussed, companies must also use all available technologies to make sure credit control and cash flow management is handled in both an accurate and streamlined manner. Through using the latest accounting software, businesses can gain complete control and visibility over company finances, including month-by-month forecasting. By also using the latest technology to streamline or completely automate invoice generation, businesses can eliminate manual interaction and the time and expense of administration. By being able to get invoices out to customers quicker, it also increases the likelihood of payments being received early or on-time.
Is Your Payment Process Up To Scratch?
In conclusion, it is clear that late payments are having a far-reaching impact on UK business and the wider economy. Although the government is doing their part to stop businesses making late payments, businesses themselves also need to look for the quick wins in their own operations and make it easier for customers to pay them. By adding greater convenience to invoicing methods and better control over cash flow management, businesses can not only benefit themselves, but also do their bit to help increase the number of businesses paying on-time, in full.
If you would like to know more information on how our Business Management Software can improve the efficiency of your business processes, contact us on 01522 704083.