Time to end the late payments crisis

THE Federation of Small Businesses (FSB) has warned that big companies must do more to end the late payments and “supply chain bullying” costing the UK economy billions.

FSB chairman Mike Cherry has written to the bosses of all FTSE100 companies urging immediate action.

He wants the big corporations to work with small businesses to help foster a new payments culture in the UK.

Research from the Blackpool-headquartered FSB shows the hugely damaging impact these practices have on small firms within supply chains.

It reveals that the vast majority (84 per cent) of small firms report being paid late, with a third (33 per cent) saying at least one in four payments they’re owed arrives later than agreed.

A similar number (37 per cent) have revealed that agreed payment terms have lengthened in the past two years, hampering their cash flow. Only four per cent say payment terms are improving.

FSB is calling for a non-executive director on boards “to be given a specific responsibility for good supply chain practice” including making sure the firm is opting to follow best practice and not just doing the absolute minimum or the best it can get away with.

Mike Cherry says: “The poor payment practices that run rampant through UK supply chains is a national disgrace with the country falling behind almost all other industrialised nations in our ability to pay small businesses on time.

“Some big businesses use inequality of power in business relationships to squeeze small suppliers and delay payments to improve their own cash flow. This is bullying, pure and simple.

“These practices are putting small businesses at risk forcing many to turn to personal credit cards or overdrafts just to survive.

“Sadly, we estimate late payments lead to 50,000 small businesses a year closing their doors, costing the economy £2.5 billion annually.

“Small businesses have the support of Secretary of State for Business, Energy and the Industrial Strategy, the Chancellor of the Exchequer and the Prime Minister in their mission to stamp out poor payment practices.

“The time has now come for big business to get on board with this mission and strive to be champions of good payment practice. My door is open to any business looking to work with small businesses to get this right.

“We can only end the late payments crisis and poor payment practices when we see a fundamental cultural shift in the boardrooms of big business, with those at the very top showing a willingness to address the issue and be accountable for their payment practices.”

 

HERE ARE SOME TIPS TO HELP AVOID BAD DEBT PROBLEMS

  1. Know your client. When you take on a new customer check them out, get to know their financial situation, and their track record of payment. If they’ve left a previous supplier find out why. Take your time and be thorough.The Small Business and Enterprise Act 2015 and the Payment Practices and Performance Regulations were launched in April 2017.  Larger companies are now required to publish twice-yearly the average time they take to pay invoices and the percentage not paid in the agreed terms.Suppliers can use the Payment Practices Reporting website (Check-payment-practices.service.gov.uk/export), to learn more about the reality of engaging in business with a larger firm.

 

  1. Get a signature. It is important to have proper Terms of Business in place. They should deal with payment terms in clear and precise terms – and set out your rights of remedy if payment is defaulted. Make sure your customers know your terms and get a signed acknowledgment from them that they have read and understood them fully. It pays to get help and advice when you are drafting them to make sure that your terms are enforceable.

 

  1. Chase debt early. Act with speed if you suspect a customer is in trouble. It can make all the difference in recovering what’s owed to you. Even if just one invoice is overdue consider if it’s in your company’s best interests to continue to work for them. You do not want to rack up the debt.

 

  1. Put procedures in place to recover bad debt. It’s vital that you have processes in place to chase what is owed to you. Some SMEs outsource this and it can be very effective for smaller businesses, putting distance between them and their client. A systems based process is vital to this, and experts will chase unpaid debts all the way to court action and enforcement if needed. It’s important to have this process in place because poor cash flow can threaten the future of your company.

 

  1. Consider court of insolvency procedures. These are the formal steps you can take if all else has failed to get what you are owed. Again look which is the best route to take – and one that gives you a realistic prospect of getting your money. If you get a successful judgement you still need to enforce it.

 

To discuss any aspects of this article please contact me on 01772 430000

 

I manage the affairs of a portfolio of clients in a wide range of industries. In managing the audit and accounts department of WNJ, I always keep abreast of the latest technical information and legislative changes. Clients receive advice based on commercial awareness not simply historical reporting. Audit and assurance services for large range of clients, including charitable companies and pension schemes, Internal audit and systems reviews, Assisting and development of business start-ups.