Get paid earlier by understanding why late payments happen.
25th September 2019.
You’ve delivered the goods, provided the service or done the work, but the transaction is not yet over.
Your payment has yet to arrive.
You agreed 30 day terms but the due date arrives and the payment hasn’t!
So what do you do when you are paid late?
How can prevent these situations arising?
Cash-Flow
Anyone who reads these blogs regularly will have heard many times that cash flow is vital to small businesses.
Cash is King!
Cash is the lifeblood of every small business!
So when that supply of life blood is blocked by late payments it can cause a figurative heart attack to your business.
For the small business it can be at the least, frustrating and distracting. Often it can cause major disturbances. In serious cases, it is lethal to the business.
Research last year by the Federation of Small Business (FSB) showed that small businesses are owed on average £6,142, mostly by larger firms and if all payments were made on time it would prevent the collapse of over 50,000 businesses every year.
Yes, 50,000 small businesses die each year because late payments have been lethal to their cash flow.
That’s 50,000 businesses that could have grown to provide employment, goods, services, wealth and meaning to their communities that were killed off – not because they were badly run or were bad ideas – but killed off by parasitic other companies who failed to pay on time.
If you are selling to other businesses then you likely have no choice but to sell on credit.
Very few businesses are prepared or able to pay up front for goods and services. They expect to pay in 30 days or at the end of the month following. Well they expect to be expected to pay then. Often the payment isn’t actually made until several days, weeks or even sometimes months after that date (if at all).
And those late payments cause pain.
You have to juggle payments, you have to move money around, it can impact on relations with suppliers, staff and customers.
In serious cases it can even threaten the existence of the business.
So understanding the reasons why payments are late can help you adapt your stance and put in place effective strategies to prevent unnecessary late payments.
Late payments
Bacs software provider Bottomline issued research recently that showed that 92% of financial decision makers admit to having paid suppliers late.
The only surprising thing about that sadly is that 8% were seemingly claiming they always pay on time.
The late payment culture has legitimised or removed the stigma from late payment. Everyone does it and it is the expected norm.
A slow payer ethic has emerged as the biggest obstacle to getting paid on time. Businesses don’t even start to think about paying till the payment date has passed and they have been chased.
Yet in reality, on the due date, the money should already have cleared and be in the suppliers account.
In 2018, the research revealed that a surprising number of financial decision makers were actively delaying payments as part of their cash flow management strategy.
In 2019, late payment is still all too common.
And what is abundantly clear is that companies are taking a conscious decision to pay suppliers late.
Government intervention, such as the Prompt Payment Code of 2008 and the Duty to Report (DTR) regulation introduced in 2017, requiring businesses to report on payment practices, have done little to reverse this unfair business practice.
Why are payments late
The research uncovered some interesting facts about what is behind late payments. You might think that it varies from company to company but some common internal and external factors leapt out:
• Just over a third of financial decision makers (35%) are actively using late payment to protect their own liquidity and cash flow.
• Blame is often put onto suppliers with 39% citing poor quality service or incorrect invoice details (33%) as reasons for late payment.
• Additionally, 40% of financial decision makers admit their business has inefficient Accounts Payable processes which limits their ability to pay on time.
• However, 17% of cases of late payment occurred because the supplier didn’t chase the invoice.
What can you do to get paid on time?
If the Government initiatives are not helping, what practical steps can business owners take to address the late payment culture?
There is no easy answer but there are some solutions and approaches that business owners can put in place that can prevent many late payments.
We’ve written before about how businesses can take steps to prevent invoices being disputed, limit the effect of disputes and overcome disputes that still arise.
Communication and checking details are all correct on the documents can go along way to tackle those organisations that use queries as a way of slowing down payment of an invoice.
Chase that invoice
Did you notice the final stat?
17% of cases of late payment occurred because the supplier didn’t chase the invoice.
Wow!
The reason behind one in every six late payments is that the supplier didn’t chase up payment of the invoice!
Don’t let that be you!
No matter how busy you are, as a business owner you always need to find the time to chase outstanding invoices.
If you can’t find the time, or don’t like the potential for confrontation that comes with chasing a late payment then pay someone else to do it for you.
The Credit Protection Association happy chases thousands of debtors every day on behalf of its members.
Acting as a third party in an ethical manner we are able to allow you to protect your personal relationship with the client.
Unlike other debt collectors, we do not operate on a percentage of the debts submitted to our overdue account recovery service as this is part of the subscription fee. We therefore encourage them to pay you direct and that also helps them maintain the relationship with you.
Our service also automatically sends a series of reminders by email and letter so you do not have to keep remembering to chase each week.
Let them know you will claim late payment compensation and interest.
It might surprise you to know that you can claim compensation, interest and third party debt recovery costs if another business is late paying you for goods or service.
The interest you can charge is called ‘statutory interest’ – this is 8% plus the Bank of England base rate for business to business transactions.
You can also charge a fixed sum of compensation to cover your costs and inconvenience when your business customer is late paying. The amount varies depending on the size of the debt and each invoice counts as an individual debt.
This is statutory right, so you do not need to spell it out in your terms or on your invoices. But if you are upfront about it with clients from the beginning and remind them when invoicing, it can encourage prompt payments.
In practice, you might not choose to use it, in order to maintain the goodwill but just discussing it, may be a suitable deterrent to deliberate late payment.
Many small businesses are reluctant to enforce this as it can damage the goodwill with a valuable customer. However, if you value your cash flow and you are repeatedly not getting paid on time by a client, then applying the interest and compensation might work as a tactic to get them to pay without actually taking legal action which would be the final step.
Getting payment up front at the point of sale is the best way to avoid late payments. But if your business or sector is based on offering credit terms to customers, then it is very likely that you will have some element of late payment at some stage.
Giving your customer as many ways to pay as possible can help. Can you give them your bank details on the invoice to encourage payments. Can you accept card payments, maybe even putting a facility on your website? Can you use direct debits? All are ways of avoiding late payments caused by inaction.
Do you practice what you preach?
We all want to encourage our clients to pay on time, but do we in turn have a policy of paying on time?
To end the late payment culture takes an effort from all of us.
And paying on time, means arranging the payment several days before the due date, not once the due date has passed.
Paying on time means the funds have cleared on the due date.
Doing so will support your suppliers to improve their own cash flow and strengthens your supply chain.
Developing strong commercial supplier relationships can be a win-win.
Collaborative relationships with customers and suppliers help encourage payments on time across the board and will mean you will be a preferred customer of your supplier.
Paying on time means they will likely be more willing to help you out in urgent times.
It places you in a better position to negotiate contracts with them and create positive relationships as your supplier no longer has to build the cost of late payment into your quote.
Summary
Late payment is the scourge of many a small business and damages the overall UK economy, reducing productivity and tying up capital that could be better deployed.
Many perfectly good companies experience cash flow problems caused by bad payers, that can be fatal. Others are forced to take advantage of expensive overdraft facilities and other sources of liquidity which impact on profit growth potential.
Breaking up the late payment culture and instead developing a culture of good payment practice across the UK business universe can have a dramatic affect on the UK.
By following the guidance above, you will be enabled to address the most common reasons why companies are not paying you on time.
Finally, don’t be afraid to turn down business from bad payers.
Sometime it is better to walk away from bad business if it is going to cause you significant problems in getting paid on time.
There are some customers it is just not worth having.
see our previous blog -The Good, the Bad and the Ugly – recognising the types of payers you do business with!
See our previous blog – The “Why” of the late payment culture.
Do you sell on credit?
With pressures on the cash flow it is essential that you stay on top of the credit limits you grant customers and watch carefully for any late payments.
Those customers will look for the easiest option to boost their cash-flow. Don’t let it be you.
You can’t just assume your customers can and will pay you eventually, no matter how big their name is.
It is essential to have credit management systems in place to monitor and check your customers credit worthiness.
It is also best practice to use a trusted third party like CPA to make sure you are paid on time by customers, no matter how good a name they have.
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 cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.
If you supply on credit, help us help you identify the risks.
Why use a third party collector?
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.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Ready to speak to an advisor?
For help or advice on credit management, entirely without obligation.
Call us today
0330 053 9263
CPA is passionate about late payment
The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.
We are extremely passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties being the single biggest killer of Britain’s small businesses.
If you were regularly paid late we can help. Those former customers used you to boost their own cashflow, 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.
Now you can boost your own cash-flow.
CPA can help unearth the those hidden treasures.
We have the technology to reveal the compensation you are due and we have the extensive experience and expertise to then turn those claims into cash.
Yes, CPA can help you boost your business cash-flow.
Don’t let your bankers control you, contact CPA today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you realise you could be sitting on a fortune?
Late payments often result in a cash flow crunch and leave SMEs in need of a cash injection.
If you sold B2B on credit then there may be a hidden source of capital you can call on.
If you fancy an bit of extra cash in your business, rather than jumping through hoops with your bank, you could look to uncover the resources from an unexpected source within your own business.
Not many are aware but there could be a hidden fortune within your business, sitting there, just waiting to be uncovered and released.
We can help you uncover the pile of gold, you didn’t even know you were sitting on.
If you trade with other businesses and were often paid late then you could be entitled to significant compensation.
Under little known and under-utilised legislation your business could be due huge amounts in compensation that you didn’t even know about.
Let’s be clear – this is not a way to weaken any customer relationships you value. It is one that identifies who’s been paying late and then recover the potentially significant sums in compensation using Late Payment Legislation from businesses where the relationship has already ended.
You can pick and choose who you want us to follow up – but once we’ve agreed which companies you’d like to pursue compensation from it’s a fast process and there’s no financial outlay to you whatsoever. My team at CPA put its expertise to work to recover the compensation due and fight late payment culture.
That compensation could provide the cash boost your business needed.
But don’t delay, that compensation evaporates if not claimed within six years of the late payment.
How can CPA help?
CPA has developed a unique technology to dig into your accounting records and discover the cash injection you are due by means of compensation. The software does all the hard work. Our software interacts over the cloud with over 300 different software packages, working directly with your accounts package, just so long as it’s stored on a computer.
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.
We do the work, you receive the cash.
If you have supplied 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 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.
We are helping business owners who are looking to boost the returns from their business before they retire. We are helping businesses who have lost major clients after years of loyal service to get properly compensated for systematic late payment. We are helping companies that were looking to close down, who looked insolvent and finding that cash injection they need to avoid insolvency.
Those former clients who regularly paid you late can finally be made to pay.
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!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections