In the UK late payment of commercial invoices is a lot like an iceberg, it’s a massive and very dangerous problem but one that is mainly hidden from view.
Sectors which are particularly badly affected by it are construction and retail although they are by no means the only ones.
Just as icebergs can be fatal to ships the issue of late payment of commercial invoices is also very bad for British business and in some cases can also be fatal to suppliers that are owed money.
For those that don’t go under, late payment can still seriously affect their businesses causing owners and managers to change their businesses practices, seek alternative financing (at increased cost), cut investment and make redundancies, to list just a few ramifications. In other words it stunts growth.
The trouble is because it’s an issue that goes largely unreported the waters are comparatively uncharted. Even the extent of the issue varies depending on the research; BACS estimate is to be c£32bn, ABFA estimates it to be c£67bn and Zurich put it at £255bn
How could something so bad have such a low profile?
Late payment is something that neither suppliers or customers like to talk about. In some cases it may even be that large [debtor] organisations are not fully aware of the issue.
Research by the Institute of Directors indicates that one of the main causes of late payment cited by suppliers is that of overbearing bureaucracy, this does not necessarily point to bad practice on the part of the customer, more that the increasing complexities and regulation surrounding the way we do business results in ever more complex business processes.
However, suppliers don’t like to talk openly about instances of late payment for fear of tainting business relationships. To do so might be seen as finger pointing by customers and a deliberate attempt to name and shame.
What should be done?
It seems hard to see how government policy or legislation can do much to solve this issue. For example, enforcing mandatory payment terms would not necessarily stem the rising tide of late payment, more likely it would simply increase the number of disputed invoices. A customer cannot be expected to pay an invoice for services or goods that are under dispute; while that may be understandable it would be harder to adjudicate each and every set of circumstances around any given dispute. The Small Business Commissioner’s office would be swamped (assuming it ever becomes a reality).
Playing the blame game really isn’t in anybody’s best interest either, but it should be possible for suppliers to cast light on their experiences in a controlled environment, this potentially benefits both suppliers and customers. However the process of doing so should be a measured one and not a knee jerk reaction which would be the equivalent of slamming the engines in reverse and steering hard to port.
By sharing non sensitive contextualised data around instances of late payment in a controlled environment (i.e. not freely open to the public are large) it will be possible to draw a more detailed map of the of the problem. This has the potential to help not only suppliers looking to find out more about their customers and the risk of doing business with them, but it can also help proactive customers that may want to protect their reputation by clarifying the reasons under which they have had to pay invoices late.
Ultimately this is an issue in which business will need find to find it’s own solution. There are already many different tactics that suppliers can deploy to cope with the issue of late payment and all of them play a valuable role, but the data shows that the issue is not getting any better.
Prevention is better (and less expensive) than cure and in order to successfully steer a course around the late payment iceberg more information and added context is needed, this in turn will lead to better decision taking before businesses enter into new commercial relationships.