Credit agency Graydon and the Forum of Private Business (FPB) published the findings of research into the impact of late payment on small business owners. Such was the severity of the report that it was discussed by a House of Commons summit attended by some of the leading lights of the UK’s financial world. They included the business department, the Labour Party, the Institute of Credit Management, Lloyds, and the Association of Certified Chartered Accountants.
The research revealed:
- 51% said late payments had affected their ability to trade
- 23% admitted it presented a ‘serious problem’
- 65% experienced issues with customers extending their terms for payment of their own accord
- 14% had seen customers demanding discounts on prompt payment without prior agreement
The report goes on to talk about the knock-on effect this has further down the line, with cash flow problems being caused by late payments.
This backs up the Bank of England’s evidence that this is an increasing problem for small companies, particularly those dealing with larger corporations. As a result, they have called for the Government to step in to help stop the practice. Many smaller firms feel powerless to change the situation, and believe they have no choice but to accept the retrospective changes in terms and conditions imposed on them by their larger counterparts.
Many small businesses are also loath to resort to factoring their invoices or charging interest on unpaid bills for fear of being blacklisted by large corporations or being perceived as facing financial difficulties.
Solving the late payment problem
The Forum of Private Business would like the Government to force FTSE-listed companies to release information regarding their timeliness when it comes to paying their invoices. Graydon also stated it needs “the business community and the Government to join forces to protect companies by stamping out the UK’s late payment culture.” This will help certainly.
However, most of the businesses surveyed in the report didn’t have formal procedure for credit control in place. Those that did were much less likely to experience late payment problems. We always stress the importance of having a proper process to our clients. And of course when you’ve exhausted these processes you can always use a debt recovery service. A client of ours The Debt Recovery Bureau offers a really efficient no success, no fee service for debts over £300. If you get your contract terms right, their services can even be at no cost to you.
If politicians and business owners push the subject into the public domain, maybe naming and shaming and the potential loss of reputation of the late payer will make the offenders think twice. Until then, let’s hope these big businesses wake up and see the damage they’re causing to the economy and business growth.
Chartered Accountant and Chartered Financial Planner