Could technology break the late payment culture?
14th December 2018 – Could technology break the late payment culture?
Research by Tungsten Network shows that one in four businesses are at risk of insolvency due to the late payment culture.
The late payment culture is a cancer on British business that damages productivity and hinders growth and investment. It kills companies with great ideas. It chokes cashflow and strangles the life out of small and large businesses.
However, the increased use of automated processes by firms in the UK has seen the average time here taken to pay suppliers improve by 14% since 2016, to an average of 42 days, compared to 49 previously.
When businesses digitise their accounts departments, systems speed up the payment process by removing friction from the supply chain. E-invoicing brings greater transparency to the supply chain and strengthens relationships and collaboration throughout. E-invoicing also improves efficiency, reducing calls and emails by 60%, while reducing fraud, error and duplication.
CPA also enables its members to automate it’s collection process. Submit your debtor details to us and we will chase automatically your outstanding debts, taking the hassle out of credit control.
However while automating the invoicing process can rob customers of some of their excuses for non-payment such as “I didn’t receive the invoice”. It doesn’t deter them from other excuses they might use to delay payment. Customers seeking to maximise their own cash-flow have a plethora of excuses they can put to use.
What is needed is a tool that will stop customers seeing late payment as a cheap way of maximising cash-flow.
How to really break the late payment culture
James Salmon, Operations Director at The Credit Protection Association said “Anything that can be done to tackle the late payment culture is a positive”
“While business customers are still able to threaten to remove future trade from their suppliers, they are able to get away with late payment without consequences as their supplier just sees late payment as an unavoidable cost of doing business and keeping the customer. The customer likewise sees it as easy and cost free cash flow.”
He added “late payment legislation provides the tools to truly change the culture. Late payment legislation allows suppliers to go back six years (due to the statute of limitations) and charge compensation and interest on late payments that happened in the past. This stops late payment from being a cost free cash flow booster”
“How will this change the culture?”
“Business customers may rely on their trading relationship with a supplier to get away with late payment, but as soon as that relationship ends, they face the prospect of being hit with 6 years worth of late payment compensation. Once that relationship ends, the supplier is fully entitled to go and ask for that retrospective compensation.
“Therefore, why risk late payment? Why operate with the risky of a large penalty looming over them? It would be better for them to pay on time and avoid that risk”
“They may not even end the relationship themselves, the supplier might get into difficulties and realise they have this large untapped asset in late payment compensation that is available to them. Or the supplier might just look at all the late payments over the years, the hassle of chasing and decide that the business customer is worth more to them as an ex-customer than they are as a current customer”
“At present, not many suppliers are insisting on this compensation and therefore it is not at the forefront of businesses minds. The more suppliers pursue late payment compensation, the more it becomes main stream, the more businesses will realise that the culture of late payment is not the magical free cash flow machine they thought it was and that it does come with a potential future cost.”
“Once they discover that every invoice they paid late, no matter how small, could lead to a compensation claim of at least £40, even if it was only late by a few days, then they are going to want to change their operating procedures to avoid future claims.”
With larger late paid invoices being worth £70 or £100 in compensation and with interest calculated daily at 8 percent above base then the costs of routinely paying suppliers late could be massive.
“They should quickly realise that it is better to pay their suppliers on time and instead finance their business’ cashflow through more traditional means.”
This doesn’t just mean deciding to write a cheque or instruct the accounts dept to raise a payment on the day it becomes due. If the payment arrives late, the penalty will still apply. No, to avoid the claim, those business customers need to make sure the payment arrives on or before the due date. If it arrives one day late then the full compensation is still due under the legislation.
“If payments start coming in on time, then those suppliers in turn will them have the cash to pay their suppliers and so on and so on…. The chain of late payment can be broken. The late payment culture can be stopped. We have the tools.”
“This isn’t an attack on business. Getting cash to flow faster through the economy can only boost our nations productivity.”
“Imagine a world where businesses and business owners spent more time working on productive projects and less on chasing payments!”
“Imagine a world where business owners could turn round jobs faster!”
“Imagine a world where business owners spent more time planning growth and new products and services and spent less time stressed over cash-flow”
“Breaking the late payment culture can liberate our nations small businesses and small business owners!”
How can CPA help?
If you sell on credit and have faced late paying business customers then we can help.
At the Credit Protection Association, our members benefit from our debt recovery and credit management services which give them the tools to avoid and battle late payments. Opening up the financial freedom needed to grow and prosper.
Our new Late Payment Compensation company, CPA (LPC) Recoveries Limited however can help suppliers unlock hidden potential and recover the compensation due to their businesses.
Integrating the historic ledgers and calculating the claims is a complicated process but CPA has developed the systems to do it. We also have the experience and expertise to collect the compensation and overcome the various objections.
We are passionate about wanting to end the culture of late payment and want to work with suppliers who feel the same.
visit our late compensation page
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The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!
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