Late payments ‘a chronic disease’ for UK SMEs » SMEInsider

Late payments ‘a chronic disease’ for UK SMEs

The problem of late payment to small companies is not going away, despite various efforts to tackle it. According to cloud software firm FreeAgent, the problem remains ‘chronic’, with only half of invoices paid on time. Indeed, FreeAgent reviewed data from a sample of its 50,000+ customer-base and analysed hundreds of thousands of invoices that were sent in the last year. The firm found that Sheffield is the area worst affected by late payment – with just 24% of invoices sent during the 2015 calendar year paid within three days of their payment deadline – closely followed by Twickenham (27%) and Slough (29%).

According to Ed Molyneux, CEO and co-founder of FreeAgent,  “We know that late payment is a huge issue for the UK economy, but our research shows just how widespread it is for the freelance and micro-business sector.

 

“We need a complete cultural shift’

“We found that just half of the invoices sent by micro-businesses across the UK get paid late, while there are certain hotspots where the problem is even more prevalent. And this isn’t just clients taking an extra week or two to pay – it also includes the chronic late payers who sit on invoices for months, as well as those who just don’t pay at all.

“It’s certainly good news that the government recognises the late payment problem and is consulting over the appointment of a small business commissioner to tackle the issue. However, I fear that whoever is appointed will have limited power to actually punish companies who routinely pay late, aside from just naming and shaming them.

“Micro-business owners need to get paid promptly to keep their cash flow healthy and most don’t have the luxury of being able to absorb a late – or non – payment in their accounts. We need to see a complete cultural shift when it comes to paying invoices, so that these types of smaller businesses are not put at risk.”

 

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  • Indeed we do need “a complete cultural shift” and the one that gets talked about least of all but is most likely to have a positive impact is if suppliers / creditors actually start taking responsibility for the situation themselves.

    Waiting for the government to take meaningful action or for customers to strengthen their ethics on the matter is fruitless. Witness Tesco, a signatory of the Prompt Payment Code.

    Not all large organisations even know they are doing it. In many cases it comes down to onerous bureaucracy. Additionally smaller businesses are just as culpable.

    Suppliers need to stand up for themselves and take the necessary action to get paid and, more importantly, avoid / mitigate late payment altogether.

    If you know you might be about to do business with a company that may pay you late either address it in the contractual negotiations or compensate for it in the financial planning process, or if the risk is too great, turn the business away. Better to not have the customer than to go out of business.

    • Karen Espley

      It’s easy to say address it in the contractual negotiations or compensate for it in the financial planning process. The reality is, as it was for our business, is that we were a small consultancy providing services to large financial institutions. They insisted on 90 day payment terms, when we had to pay our consultants on 30 day payment terms, meaning we had to factor our invoices for a long time until we built up enough reserves to be able to wean ourselves off it. This was non-negotiable.
      Secondly – they would change the invoicing rules and not tell you. So you would be following the process (which was generally incredibly onerous) to the ‘t’ and they would have changed things. They never told you and it was only when we chased the debt they would tell us. And then it would take weeks to untangle. There is only so loud you can shout when you are such a tiny organisation and whilst I wanted to go hard on them, the sales and delivery team wouldn’t allow it – as the risk was we would lose a client we could ill afford to lose. And this was across several clients – so not just one.
      It isn’t as simple as getting it all agreed up front – it simply doesn’t work that way.

      • Karen, I appreciate what you are saying. Obviously I don’t know the specifics of your situation but I certainly sympathise.

        To your first point, presumably you knew about the 90 day invoicing before you took on the business and so were able to at least make an informed decision about whether your business could find a way to carry the cost of your consultant invoices for the interim either by factoring your own invoices or possibly discussing similar terms with your consultants.

        To your second point, this is indeed appalling behaviour on the part of your clients and, as you say, the very fact that that they didn’t tell you about the changes (either intentionally or unintentionally) until you chased the debt is part of the problem as it leaves suppliers in this kind of situation frantically having to accommodate a debt which wasn’t planned for.

        If in advance of signing a contract, businesses know that clients may be likely to change terms or invoicing procedures half way through a project then this knowledge affords the opportunity to find out what kind of changes are likely to occur and agree in advance that either a proportion of the fee be paid up front, or for any such changes to be notified well in advance and not upon the chasing of an invoice, or for the duration of the first project no such changes should be applicable to invoices raised, or other such solution as may be appropriate.

        Our point is simply that to be forewarned of this kind of practice is to be forearmed.

        All that said, I hope you have now received all that you are owed.