Introducing The Late Payment Directory
Being owed money and not knowing when it’s likely to be paid is bad for cashflow, the lifeblood of any business.
If you’ve worked hard to win a piece of business and delivered on your commitment only to find that when terms are up you’re getting excuses instead of payment it will put both business and owner / manager under a great deal of stress.
Add to that employee wages that still need to be paid, the cost of servicing a contract and the desire to retain the customer and the net result is amplified.
Late payment has been a long running issue in the UK and the most recent figures at the time of writing show that total value of overdue invoices stands at around £32bn. The good news is that figure has come down from £41bn in 2014. (Source: BACS)
80% of companies that experience late payment are kept waiting roughly a month longer than the agreed terms (assuming terms were actually agreed), that’s longer than it was at the peak of the recession. The average amount owed to SMEs is c. £36k.
Late payment costs UK small business a total of £10.8bn a year in recovery costs (compared to £8.2bn in 2014), an average of £11,500 pa or £955 pcm per company. Other sources put this figure even higher at £15,000 pa.
24% say that late payments are forcing them to rely on bank loans to bridge the gap and 26% say late payments are forcing them to pay their suppliers late as a knock on effect. That final statistic is telling because it points to the possibility that while much of the problem of late payment might stem from larger organisations, the trickle down effect means that it is endemic across the whole business community.
10% of businesses say they have to turn away new business as a result of late payment, 5% have to make redundancies and 5% of bad debt is written off altogether (Source: Hilton Baird). These are all barriers to growth.
Tackling late payment
The government is under pressure to provide a solution on behalf of the supplier / creditor to ensure that big companies (and government bodies) pay their bills on time. A new Minister for Small Business, Industry and Enterprise has been created (@Anna_Soubry) and one of her first actions has been to start the search for a Small Business Commissioner who will be tasked with helping settle disputes.
A Government consultation carried out in 2014 and published in Q1 2015 revealed that businesses want greater transparency, to that end from April 2016 the government will require all large organisations (about 7,000 businesses out of the 5.2 million in the UK) to publish details of all invoices they have settled beyond terms.
The advice in mitigating late payment is often to get to know your customer – this is absolutely right and there is a lot of quantitative data out there to help with that but context is critical for companies that want to navigate these choppy waters and still grow their business.
The Late Payment Directory focuses on the subject matter – the overdue invoices themselves and vitally, the circumstances surrounding them.
Getting some perspective
Its easy to point an accusatory finger at large organisations but research conducted by the Institute of Directors in December 2014 showed that 43% of respondents cited excessively bureaucratic payment systems as a barrier to prompt payment. Of course this does not exonerate [big] business altogether but it does suggest that the issue is not always as a result of a deliberate intention to avoid paying for good or services received as it is sometimes portrayed.
Equally it has to be accepted that simple error can occur at the supplier end, for example if a customer uses a purchase order system but no PO was included with an invoice when it was submitted by the supplier it could take longer to settle.
This would not be the fault of the debtor and yet under the government’s plans they would have to declare the invoice as paid late without any further context. Any smaller supplier looking to do business with them may be put off. Context is vital.
Equally, small and mid-sized businesses must not be made to feel as though they are victims of an accidental or institutionalised culture of late payment where it exists. They should have the tools and opportunity to push back against it without fear of recrimination. Crowdsourcing data to help people make more informed and better decisions has revolutionised many areas of society and it can do the same here.
To find out more about The Late Payment Directory and how it can help businesses navigate this issue click here.