‘Pandemic’, ‘Brexit’, ‘mental health’.

A triumvirate of buzzwords. That is in no way to make light of any of them. To the contrary, each in their own right heralds a very serious issue.

Starting with the third, this has reached epidemic levels in this country already, but for business owners and managers it’s being amplified by the first two.

The pandemic has slowed the engine of economic growth not only in the U.K. but around the world. It doesn’t matter if you are a large or small company, the pandemic doesn’t care. Some sectors such as tech and personal fitness (to highlight a couple) have thrived but for so many others these are straightened times.

Add to that the travails of Brexit in 2021 and, if you are an exporter, the burdens of doing business just got more onerous.

One of the most oft used excuses for late payment goes something along the lines of:

“I haven’t been paid by my client / customer so I can’t afford to pay you”

With the additional volume of import and export customs forms that must now be completed following the Brexit agreement, the time it takes for some businesses to actually “do business” will get longer. Ergo some less scrupulous organisations might take advantage of this to further delay payments.

There’s no doubt, late payment adds a lot of stress to running a business, and you have to think about what you can do to alleviate that stress. For many it’s not just about money that is owed, it’s also about the uncertainty and the accompanying inability to plan. The loss of agency and the sense of helplessness when a key customer or client drags their feet on a big invoice.

That’s where mental health can start to falter. Don’t let it go unchallenged – the mental health issues or the late payment. Take a stand even if it’s only a small one. Do it for yourself as well as for your business.

This is a series of Q & A interviews with Nicki Kinton of Confident Cashflow in which PPD is looking at the typical excuses that suppliers often hear when chasing late payments, and asking Nicki how best to handle them.

 

Excuse #8 – I am unable to raise manual cheques

 

I know cheques are antiquated these days but, in your experience, how many organisations no longer have a chequebook?

There are still a significant number of businesses paying by cheque in the UK. In 2017 more than 400 million cheques were used across the UK for both business and domestic payments and to acquire cash.

Cheques need to go through a clearing process and this may take a few days. The money isn’t taken from the payer’s bank account until the bank has confirmed there are funds available so cheques are a good way for a business to uphold its contractual obligation to pay, whilst holding on to the funds for a little bit longer.

Additionally, some businesses insist on paying by cheque because it gives the owner a sense of control.

Medium to larger sized businesses, who have a lot of outgoing payments are more likely have printable cheques rather than a chequebook and will have set print run dates.

 

In your experience is this generally a legitimate excuse or an effort to try it on?

It certainly can be a delaying tactic but often the internal red tape involved in getting a single cheque printed (or typed) can be very onerous and it may be quicker to wait for the scheduled print run.

 

Surely for a customer that gives this explanation, the simple option is to go the BACS or Direct Debit route?

Always ask for BACS in these cases. Direct Debit takes time to get set up and there are still a surprising number of businesses that are reluctant to sign up to Direct Debit as they feel it removes the control of payments from them to their supplier.

 

Honestly, this explanation sounds like the kind of thing that should really be clarified in advance of signing a contract. Do you think there’s any excuse for suppliers not being aware of this in advance?

I think it’s vitally important to understand from the outset of the relationship what your potential customer’s payment processes are, including, available payment methods, authorisation and key personnel involved in the process (or at least job roles).

Knowing the process allows you to tailor the timing and content of your credit control calls to get the best possible outcome.

 

Are there any other payment methods aside from BACS and/or DD that suppliers should consider proposing for large denomination payments from their customers?

Bank Transfers and DD are the best methods for cleared funds and once set up are easy to manage.

You could also provide the facilities to take payment by debit card or credit card, particularly for smaller businesses. I wouldn’t advise taking cash, unless for small values or in a retail environment, as that could leave you vulnerable to money laundering schemes (depending on your product or service).

I would recommend regularly (every 6 months or at least annually) writing to all customers still paying by cheque encouraging them to switch to Bank Transfer or Direct Debit. Every time you will get some that migrate, making managing receipts easier overall.

It’s also a good idea to set out your expectations from the beginning with new contracts and only accept payment by these methods as part of the contract. Cheques are not legal tender in the UK, they never have been, so you are not obliged to accept them.

 

Confident Cashflow offers a complete credit management solution for your business covering all the core competencies including due diligence / designing credit policies / designing terms of business / improving the accounts receivable process / ensuring compliance with consumer credit regulation and Credit Insurance Policy / establishing reasonable credit limits and payment terms and more. To contact Nicki click here.

On Monday 23rd April, a group lead by Peter Aldous MP handed in a petition to 10 Downing Street in support of an amendment to the Housing, Grants, Construction and Regeneration Act 1996 regarding the protection of retentions.

In the construction industry, the practice of retentions is the withholding of money in lieu of outstanding work. In domestic terms, it’s basically a hedge against snagging. However, this has come to be abused and used as a way of holding back money to help bolster contractor balance sheets. Applied across many suppliers, to a single contractor it can amount to a large sum of money. Essentially it can become a form of late payment.

In the UK the construction industry is hemorrhaging almost £1m each working day, £4.5m a week, £20m a month, mostly from SMEs. Following the Carillion liquidation, there is an unprecedented campaign from industry calling on the government to act.

David Frise, CEO of BESA, and Peter Aldous MP outside 10 Downing Street

Proposals to stop the abuse of retentions have been made before, but in January 2018 the Aldous Bill passed its first reading unopposed. The Bill seeks to amend the Construction Act, to ensure that retention monies are held in a third-party trust account thereby leaving them less vulnerable to abuse.

To put this in perspective, abuse of retentions has been legislated against in many other countries, including the USA, Germany, France, New Zealand, Australia and Canada. The U.K. is lagging behind.

The bill has 12 parliamentary sponsors across all parties. It is supported by more than 110 MPs, again across all parties and it has official support from more than 70 trade and industry bodies of which The Prompt Payment Directory is one.

The bill goes for its second reading in the House of Commons on Friday 27th April.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy in which PPD is looking at the typical excuses that suppliers often hear when chasing late payments, and asking Nicki how best to handle them.

 

Excuse #7 – I dispute the payment

 

What does this usually mean? That the amount is disputed or that the entire premise of the invoice/payment is disputed?

This is vague enough to mean anything! In my experience it’s most likely to mean one of the following:

  1. A pricing dispute
  2. A quality dispute
  3. A delivery dispute

 

This excuse sounds like a delaying tactic to tie up the supplier in a dispute while delaying payment. Is that often true?

Pricing and delivery disputes are more often genuine, though not always in the customer’s favor. Usually, there has been some misunderstanding over the price quoted, perhaps your pricing is on a sliding scale tied to quantity and the customer has ordered a different quantity than usual. Or you may have recently introduced price changes which have not been updated in your customers’ systems.

It may, however, be an error on the invoice. This often occurs when your customer is on non-standard pricing tariff and you accidentally use the standard pricing on the invoice, or a promised discount hasn’t been applied.

There’s much that can go wrong with delivery from incorrect quantity delivered to damaged goods or a dispute over the delivery charge.

However, disputes over quality can be quite subjective, particularly with services, and are often a delaying tactic.

 

Presumably the presence of a solid paper trail is vital in resolving issues like this?

Most definitely. Quotes should be sent in writing and acceptance should be received in writing, even if this is done with an email confirmation following a verbal quote and acceptance.

If the query has arisen because of a pricing change, having a document trail of when and who was informed of the changes helps to resolve the issue quickly.

Delivery notes should all be linked to an invoice and all deliveries should be signed for. Where possible goods should be inspected before accepting a signature, not so easy to control if you’re using a third-party delivery service.

Your terms and conditions should be very clear about quality and what the customer has a right to expect from you.

 

How often do these kinds of dispute end up in legal action?

Very few in my experience. Possibly because of the desire to maintain goodwill, particularly in the case of pricing or delivery queries.

 

In your experience what are the best ways to resolve this kind of dispute without a major falling out?

Most importantly, investigate each query and act on it quickly. If the same sort of query is occurring regularly revisit your processes and controls to see what needs to be done to stop it happening in the future.

Have a transparent dispute resolution process, which include timeframes and keep the customer updated regularly with the investigation.

Prevention is always better than cure!

Always be open and honest with your pricing. If you are giving estimates instead of quotes be sure to be very clear with your customer the basis on which you have to provide the estimate and the likelihood of, and possible reasons why the actual costs could be more than the estimate. Keep your customer informed at all times of issues likely to affect the cost.

Be clear in your communications with customers about your prices; are they inclusive or exclusive of VAT, what other costs may be involved (e.g. delivery charges), are they subject to change and under what circumstances?

Set expectations regarding quality within your Terms & Conditions and communicate regularly with your customers so that any quality issues are picked up quickly and not left unidentified until it’s time to pay.

If you do everything you can to resolve a dispute fairly and equitably the relationship with your customers should remain intact and may even improve if they see you to be delivering great customer service under testing circumstances.

 

NK Credit Consultancy Ltd offers a complete credit management solution for your business covering all the core competencies including due diligence / designing credit policies / designing terms of business / improving the accounts receivable process / ensuring compliance with consumer credit regulation and Credit Insurance Policy / establishing reasonable credit limits and payment terms and more. To contact Nicki click here.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy in which PPD is looking at the typical excuses that suppliers often hear when chasing late payments, and asking Nicki how best to handle them.

 

Excuse #6 – Currently in the process of switching bank accounts

 

Really? How often does this happen?

It does happen, and more so these days with the BACS Current Account Switch Guarantee for individuals and small businesses ( under 50 employees and Turnover not exceeding £6.5 million).

 

Switching bank accounts sounds like an administrative quagmire, how long does it take to complete the process?

Since 2013 the major banks have all agreed to complete a small business bank account switch within 7 days. Small businesses can use the Current Account Switch Service managed by BACS and the new bank manage it all for you (there’s some form filling to do before hand). There should be no loss of access as the new account is opened prior to the switch date and everything transfers on that date.

For larger businesses the process should be very similar but without the Current Account Switch Guarantee and may a little take longer if they have a number of accounts and processes, such as direct debit, to move over.

Because the new bank account is set up before the old one is closed businesses can ask their customer to pay into the new account before the switch takes place, whilst all their payment data is still attached to the old account until the switch date.  This has implications for being able to make payments if funds are going into a different account and could be the reason for any payment delays.

Also, whilst the process with the bank may be relatively straightforward, sometimes updating antiquated legacy systems to interact with the new bank can cause delays.

 

Surely switching bank accounts can’t be an impediment to cashflow otherwise it would affect incoming funds as well as outgoing funds wouldn’t it?

As mentioned above, cash inflow isn’t a problem if you’ve informed your customers of your new bank account. For the small business switches, the old bank will automatically transfer receipts made to the old bank account after the switch date. For larger businesses they will probably need to keep the old account open for a period to capture any customer payments that are still made to that account and manually transfer.

Switching accounts shouldn’t delay payment for more than a few days. If you are being told otherwise either it’s all gone horribly wrong (unlikely) or they’re stalling.

 

What can a supplier counter with when faced with this explanation?

This is always a difficult one and really depends on the relationship you have with the customer and their value to your business.

You could suspend any future work until the situation is resolved and you should remind your customer of any late payment penalties.

Consider requesting a credit card payment. That has no impact on the bank account (until they need to pay the bill) so should still work.

If you’re prepared to wait then ask your customer for the exact date the switch will be complete and arrange a date for payment. As mentioned above, this should be no more than a few days.

 

 

NK Credit Consultancy Ltd offers a complete credit management solution for your business covering all the core competencies including due diligence / designing credit policies / designing terms of business / improving the accounts receivable process / ensuring compliance with consumer credit regulation and Credit Insurance Policy / establishing reasonable credit limits and payment terms and more. To contact Nicki click here.

This is a series of Q & A interviews with Nicki Kinton of NK Credit Consultancy in which PPD is looking at the typical excuses that suppliers often hear when chasing late payments, and asking Nicki how best to handle them.

 

Excuse #5 – Cheque is in the post

 

This sounds like a classic delaying tactic, based on your extensive experience how often would you say it’s likely to genuinely be the case?

It’s probably the most popular fob off in the book. Not helped by the fact that there’s a general perception that the postal service is unreliable and underperforms, therefore supporting the assertion that it’s at fault.

 

Assuming it is a stalling tactic, what should be the supplier’s next move?

You should ask for the date sent, by what class of postage and the cheque number. Of course, they can’t provide the latter if they’ve not sent it! If they can’t give you the cheque number ask why not? You may get some interesting reasons, be prepared to challenge them by asking if it really has been sent yet.

The post can be unreliable at times, if I were trying to delay payment my next play would be to suggest the cheque got lost in the post and to wait a while longer.

 

What can a supplier do to counter this kind of persistent delaying tactic?

This depends on how long ago the customer is suggesting they sent it. If only a couple of days then agree to wait a couple more (with the above details obtained). If it’s been more than a week then ask them to cancel the cheque and send a replacement BACS/Faster payment with the assurance that you will return the cheque to them or destroy it should it ever arrive.

 

Direct debit or bank transfer both seem like obvious work arounds but what if a customer refuses to go that route?

Unfortunately, even in this modern electronic age there are still many businesses that insist on paying by cheque. These are usually business were the owner/director feels more in control of their money by having to physically sign a piece of paper to make a payment. BACS doesn’t have quite the same feel of control and Direct Debit means relinquishing control completely!

This applies to consumers too, particularly more “senior” customers who may not be so comfortable around electronics and the internet, though this is lessening.

You have every right to refuse to accept cheques, but with that decision you have to accept that there will be some businesses or consumers who won’t want to buy your