Crack down on the late payment culture

James Salmon, Director, 15th March 2019.

Hammond cracks down on late payment

The Chancellor of the Exchequer, Philip Hammond, promised on Wednesday to crack down on the late payment culture.

During his Spring Statement, the chancellor announced he is to force big companies to reveal how long they take to pay small suppliers as part of a crackdown on late payments.

The Chancellor said audit committees will be required to review payment practices and report on them in their annual accounts, with a non-executive director given responsibility for reporting on how quickly suppliers were being paid.

The Financial Reporting Council has been asked to look at whether it can change existing rules or if the Government needs to pass legislation.

The Government is to ask the Financial Reporting Council to consider how audit committees of listed companies can police payment performance, with the accounting regulator to consider how a voluntary solution to the issue of late payments might be agreed with industry.

If no solution is identified, legislation could be introduced which would force boards to review how long their organisation takes to pay invoices.

Late payments cost SMEs £13bn a year

Measures to protect SMEs from late payments are supported by evidence which suggests that many large companies are abusing their position with poor payment practices, so harming small business productivity and growth.

According to the FSB, 80% of small businesses are paid late, with the 5.7m SMEs across Britain owed £6,142 on average and £13bn in total last year.

Over a third of small businesses say big companies have extended their payment terms in the last two years, with such practices causing 37% of small businesses to struggle with cash flow, 30% to take out an overdraft, and 20% to see a slowdown in profit growth.

Amidst the collapse of multiple high street retailers last year, the BEIS Committee faulted many large high street companies for imposing long supplier payment arrangements, with many taking 60 days on average to pay invoices.

WHSmith, Boots UK and Holland & Barrett have all been accused of such payment practices.

Reporting is hoped to keep an additional 50,000 companies from folding each year and add £2.5bn to the UK economy, with CBI economist Rain Newton-Smith stating: “If reporting encourages better behaviour from firms, that should be welcomed.”

Business rate hike condemned

While the introduction of payment reporting has been welcomed, the Chancellor’s failure to address support for struggling High Street business in his Spring Statement has been criticised by industry leaders, who say business rate reductions are needed to stem insolvencies. Over 47,000 retailers face a £128m increase in business rate costs from April, with rates set to balloon to 50.4% of company’s annual rent payments in a move that is projected to generate an additional £400m annually for the Treasury.

High tax, rent and wage costs are increasingly untenable for high street companies, as low consumer and investor confidence combine with reduced footfall and competition from e-commerce to shrink profit margins. In light of this, property adviser Robert Hayton of Altus Group says the Exchequer has “missed a golden opportunity to help major retail and hospitality businesses who are reducing their estates and headcount, as well as manufacturers and the services industries hurting from current uncertainties”.

Will this  move stop late payments?

It is estimated that poor payment practices by big businesses towards their smaller suppliers results in the closure of about 50,000 companies a year, so this is an important issue.

The FSB has suggested wants to make it a requirement for board-level oversight of payment performance to large private companies employing 250 employees or more, as well as listed ones.

Mike Cherry, chairman of the Federation of Small Businesses, welcomed the move, saying: “The end of late payments could be in sight. It can’t come soon enough, to bolster small businesses at a time when they are in great need of support and a lift in confidence.”

The Credit Protection Association however is not so confident. We do not agree that having to simply report and review late payment in the tomes of their annual accounts is going to really motivate big businesses to change the late payment culture while it still represents such cheap easy cashflow.

Mike Cherry,  said himself earlier this month : “For far too long some big businesses have been allowed to get away with poor behaviour that has seen them use their dominant position to bully and squeeze our small firms. This behaviour has forced many small businesses to take drastic steps, like turning to personal credit cards and overdrafts, just to survive the wait for a payment. Sadly, some don’t survive this wait.”

Others agree

Brian Palmer, policy expert at the Association of Taxation Technicians agrees that the proposal is unlikely to make much difference. He said “The audit committee reporting proposal announced at the Spring Statement isn’t going to end the late payments scourge that leads to almost a quarter of all business insolvencies.”

He added: “Large companies are already legally obliged to publish pay data in the public register, and simply tightening reporting requirements by getting them to report it elsewhere doesn’t lead to better practice.”

Contractor body IPSE has also come to the same conclusion that the government’s good intentions do not translate into tangible change in the payment practices suffered by small suppliers.

“The government is making a concerted effort to address the scourge of late payment, [but] it does appear to be locked in a holding pattern of consultations on this [issue]”, it said.

The terms for supplying a big firm are often 120-days but even then, according to the ATT, money will not necessarily hit the supplier’s account after their wait — of almost four-months.

“There is a culture of organisations disputing fees in full or in part, during or after the period, which can increase further the time it takes to get paid,” the association said.

Revised in 2015, the Prompt Payment Code was supposed to tackle this problem, but the government last year admitted that even though it is voluntary, the code is still “flouted.”

It is also not properly policed, or as Mr Palmer described it, there is “little appetite for kicking [signatories] out of the code or otherwise punishing them” for not abiding by it.

Even the CBI are unsure

The CBI, the employers’ organisation, is among those who will watch for such developments on late payment with interest, as it too sounds unsure if the chancellor’s plan is going to cut it.

“Prompt payment practices are good for businesses throughout the supply chain, so if [audit committee] reporting encourages better behaviour from firms that should be welcomed,” it said.

The chancellors new plea does nothing to really force change. it is not really a crack down on the late payment culture.

What  CPA suggests!

CPA agrees that the late payment culture is a huge problem.

So many small businesses are choked by late payment.

Cash-flow problems are the biggest killer of businesses.

Shortening the credit cycle would actually boost the economy dramatically, help businesses to grow and strengthen the wealth of our country.

Therefore anything that can be done to tackle late payments and boost cashflow must be encouraged.

We must crack down on the late payment culture.

Are you affected by late payment of invoices?

The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.

We are passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties.

CPA’s main business has been helping SMEs avoid bad payers and speeding up late payers for decades.

We can get those late overdue invoices owed to you by your customers paid and into your bank account, giving you the cash flow to boost your business.

However to crack down on the late payment culture we are going further.

Our new service CPA (LPC) Recoveries is pioneering a new way to crack down on the late payment culture – by hitting late payers in the pocket!

Why legislation isn’t being used

Legislation already exists to give businesses the tools to fight late payment but it simply is not being used.

Legislation exists that offers suppliers compensation and interest every time an invoice is paid late.

But businesses don’t want to ask for it while they are still trading with their customer as they fear it will sour the relationship. That’s understandable!

So with the risk of losing business by asking for compensation, Suppliers stay quiet and the business customers are able to get away with late payment without any seeming consequences as their supplier just sees late payment as an unavoidable cost of doing business and keeping the customer.  To the customer it just looks like free credit. Hold on to payment as long as possible and boost their own cash flow. It costs them nothing!

How legislation could be switched “on”

However late payment legislation allows suppliers to get compensation on every invoice paid late up to six years (due to the statute of limitations) after the payment became late!

How can this be used to crack down on the late payment culture?

Business customers may rely on their trading relationship with a supplier to get away with late payment.

They may think “my supplier isn’t going to ask for compensation and interest and risk souring our relationship”

But what happens when that relationship ends?

Eventually businesses stop trading with each other. At some point that big customer decides to take his trade to another supplier.

At that point the old supplier can now go back and charge compensation on every late paid invoice over the last six years.

What if the customer was aware of that and  faced the very real prospect they face of being charged with 6 years worth of late payment compensation and interest on all the previous late payments. Once that relationship ends, the supplier is fully entitled to go and ask for that retrospective compensation.

That fear should drive them to amend their practices. 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 and future cost.

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.

SME’s need to act & CPA can help

The penalty of late payment compensation at the end of a relationship only becomes a real fear if suppliers actually start claiming it.

At present, not many suppliers are insisting on this compensation  and therefore it is not at the forefront of businesses minds.

CPA (LPC) Recoveries are now working with small businesses to recover late payment compensation and interest from former business customers.

Some of our clients were dropped by some large customers but have now been able to pursue some very large claims for compensation on invoices paid late over the last six years.

The more suppliers pursue late payment compensation, the more it becomes a recognized liability, 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.

Lessons will be learned quickly

Business customers 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. Its not the date the payment is started, it’s the date it is received. If the payment arrives late, the penalty will still apply.

No, to avoid the claim, those business customers must 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.

Can you imagine a world where most of  your business customers tried their hardest to make sure you received there payment on time?

Can you imagine a world where your business customers wanted to make sure you had your payment out of fear that, otherwise,  some time in the next six years you could be knocking on their door for compensation because they paid late.

Why would they want to save a few pounds in interest on credit from legitimate means by paying you late when that could cost them at least £40 or more in compensation?

It doesn’t add up.

The accountants would tell the bosses to pay on time.

The penny would drop – late payment is not actually free credit!  It’s actually very expensive credit!

If the late payment culture was broken…

If payments start routinely coming in on time, then those suppliers in turn will then 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. Legislation already gives us the tools to crack down on the late payment culture.

This isn’t an attack on business. Getting cash to flow faster through the economy can only boost our nations productivity.

This is the crack down on the late payment culture we need.

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.

The Credit Protection Association plc (established 1914) has spent 3 years researching the accounting, technical and legal implications of Late Payment Legislation and our staff and retained solicitors probably have as much working knowledge of this legislation as could be found anywhere.

We recognise that most companies do not have the resources to spend time on the identification and calculation of Late Payment Compensation. Our service can produce an Analyses within just a few days with (usually) less than 30 mins of co-operation from our clients. We work directly with over 300 accounting packages but can also work with bespoke accounts packages. Indeed, speed is essential as the oldest invoices may fall foul of the 6-year time limit.

Once the Sales Ledger Analyses is made available to clients, all that is required is that management decide which commercially sensitive ex-customers to remove from the list and return it to us.

CPA then uses its years of collection experience to explain and recover the Late Payment Compensation Claims. Clients do not handle any part of the recovery process as our team will take all communications from the companies against who the claims has been made. Often, it’s simply a case of explaining the legislation, sometimes we have to go all the way and enforce the legislation through the courts.

The result is that we are realising clients’ claims worth tens and sometimes hundreds of thousands of pounds which, of course, is pure net profit.  You may also be among the recipients of “hundreds of thousands of pounds” should you elect to take advantage of our services.

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.

If you have supplied your goods and services to businesses on credit and were regularly paid late then you could be due significant sums in late payment compensation.

We are talking to small companies and unearthing claims in the hundreds of thousands from former business customers who paid them late. Large business customers who abused their power to inflict unfair and sometimes illegal payment practices.

Those former customers used you to boost their own cash-flow, regularly paying you late.

As a result you had extra costs, you had the distraction of having to chase payment, you had opportunity costs because your capital was tied up in their late invoices.

Under little used legislation, you are entitled to compensation for those late payments.

CPA have developed unique technology and systems that can interact with over 300 different accounting packages to unearth these claims, hidden in your accounting records and calculate the extra capital that you are owed.

We then have then can use extensive experience to recover those claims from your former business customers.

visit our late payment compensation page

See our full blog and FAQ on late payment compensation

About CPA

The Credit Protection Association can help!

Formed in 1914, CPA has been providing credit management services to SMEs for over 100 years.

At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.

We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports however predict approximately 96% of company insolvencies long before they arrive.

Companies in trouble usually have very bad bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.

As a third party collector, we can also get your payments prioritised over those who are not as hot on collections. When you customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.

Over the years we have collected billions in overdue invoices for our customers.

Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.

Ready to speak to an advisor?

For help or advice on credit management, entirely without obligation.

Call us today

0330 053 9263

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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See our full blog and FAQ on late payment compensation

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