Member Article

Late payments pose threat to small businesses

Small businesses are being advised to tackle the problem of late payments, which are in danger of threatening their profits, growth and survival prospects.

In a survey by Graydon UK and the Forum of Private Business, it was revealed that over half of all businesses struggled with the issue of late payments. For 23% of these companies, late payments were found to be a serious problem, while 16% had almost been put out of business as a result.

The results also showed that late payments can have a domino effect down the supply chain, with 56% of respondents indicating that they themselves have had to pay suppliers late when they have been paid late themselves.

45% had found that late payments were eroding their profits, and 23% said that it had undermined their ability to invest in growth through innovation.

Gordon Skaljak, External Spokesperson, Graydon UK, commented: “The current economic climate makes it more important than ever that companies clearly understand the risks and opportunities associated with their operations.

“This includes identifying the cash flow and other risks triggered by the late payment of trade invoices by customers.”

Overall, 65% of respondents reported customers extending their payment terms without notice or consultation. Twenty seven per cent said suppliers had universally changed terms and conditions and 25 per cent that customers had withheld final payments without consent in order to assess the quality of work first.

The statistics also showed that businesses who have embraced credit control procedures of some form were less likely to fall victim of late payments, yet less than half were found to have implemented these measures. Only one third were found to have prompt payment incentives and just 30% used existing legislation to charge interest on late payments.

Gordon continued: “Companies cannot achieve sustainable growth if they aren’t paid on time consistently.

“This is why having a formal credit management process based on reliable, accurate customer payment behaviour information is essential for businesses who want to transact with confidence and fulfill their sustainable growth potential.”

Phil Orford, chief executive of the Forum of Private Business now believes that more must be done to help businesses protect themselves from late payments.

He added: “We need to do two important things – first, communicate to business owners exactly what they can do proactively to minimise late payment, including putting in place robust cash flow management procedures and even simply invoicing properly and on time, then we need to provide the support and services they need to make tackling late payment a standardised business process.

“Second, we need to persuade large corporations to embrace paying their suppliers on time and in full, avoiding the temptation to impose damaging, retrospective changes to terms and conditions, so that prompt, proper payment washes down the supply chain.

“These are the aims that are squarely in our sights and we are committed to working with the Government and other agencies in order to achieve them.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .