The Association of Chartered Certified Accountants (ACCA) has urged legislators to throw out the existing rulebook and start from scratch when it comes to deciding how to manage and regulate late payments.
In the final study of its three-part research into late payment, Ending Late Payment, ACCA says the key to ending it is by building a financial infrastructure that would boost trade credit – for small businesses in particular.
“Late payment is life-threatening for many organisations in the UK, and its impact on the smallest businesses is most acute. Those with fewer than 50 employees are typically twice as likely as large corporates to report problems with late payment,” said Andrew Leck, ACCA spokesperson.
The report presented nine conditions that have to be met in order to make trade credit sustainable. These include making buyers’ and suppliers’ terms of credit more transparent; there should be clear credit policies and contract terms that make cash flows more predictable.; senior staff should take responsibility for invoicing, collections and accounts payable.
ACCA also said suppliers should be aware of the risks entailed when providing credit to customers and that the status of invoices should be monitored throughout the whole process.
“When late payment becomes a chronic problem, supply chains are beyond repair and customer relationships fail. Opening the doors to trade credit for the UK’s businesses is a solution that could put a stop to late payment before it has even started,” continued Andrew Leck.