An Interview on late payments
23 October 2020.
James Salmon, Operations Director.
CPA Media interview on late payments
This week our Managing Director, David Baber, answered a journalists questions on late payments. We share his answers with you.
Why has late payment become such a big issue?
Late payment has always been a big issue, but how big or small it is at any given time is governed by the prevailing financial situation and other factors such as the BoE bank rate, high or low; also whether there is a prevailing credit squeeze and so on.
During the last few years many businesses have become relaxed about being paid late, the reason being because interest rates have been so low therefore rendering overdrafts and bank borrowings less expensive. Prior to the covid-19 epidemic, the previous few years were easy for most businesses and there was much expansion.
Now because of covid-19 most businesses have seen substantial cuts in business and reduction in their sales turnover, yet having to maintain high existing overheads such as salaries, rent, rates, etc. Thus, the necessity of being paid promptly by customers is becoming more urgent. Many businesses have been kept afloat by the Chancellor’s munificence but with the end of 2020 fast approaching and the furlough scheme coming to an end the state of finances will become even more serious. The grisly evidence of this will be manifested in 2021 with probably a record number of business insolvencies.
Another reason why late payment has become a major issue is because successive governments of both political parties have rightly realised the huge benefits of the country’s economy being hugely boosted if the overall average credit cycle of businesses could be increased from what it normally is of around 6.5 cycles per year, to possibly as high as 9 cycles per year. This could happen if say 30% of all businesses paid their invoices within agreed credit terms. Economists are aware that when the annual credit cycles increase, the increase in the country’s economy would be vast.
Late payment legislation started with the Late Payment Interest Act 1998 when the then Labour government brought in this bill to make it possible for businesses who have been paid late by other businesses to claim late payment interest of 8% over the BoE prevailing rate on the overdue amount. Then, later in 2002, another bill was enacted to add compensation to businesses that made claims against their suppliers for late payments. So, since then businesses have been able to claim both interest and compensation on every individual invoice that was paid late. The compensation itself has not yet ever changed, which it should have been to adjust for inflation since 2002. It is now still £40, £70 or £100 per individual invoice depending on how large the late paid invoice is.
What is the scale of the problem?
The scale of the problem is vast. However, it fluctuates according to financial and social conditions. However, the hidden cost is inestimable because struggling businesses cannot invest in new stock and expansion unless they have adequate cash-flow. It is a fact that over 50,000 businesses fail every year because of late payments and the resultant poor cash-flow, more than any other reason. If customers do not pay their suppliers on time, the creditors growth is thus stunted because they are restricted from buying goods or services on credit until they themselves have the means to pay for them. Sometimes such desperation leads to entering into expensive factoring arrangements or loans against security from banks, such remedies add to costs and reduce profit unless considerable expansion can be guaranteed.
How has it been exacerbated by the Covid-19 pandemic?
We do not know yet. No one yet knows how very severe the effects will be due to the covid-19 epidemic as the pandemic isn’t over yet. But we are seeing and hearing reports of a large increase in late payments.
The way most companies gauge the credit worthiness of other companies is to inspect credit reports which reveal assessed scores, recommended credit limits and whether county court judgements (CCJs) have been incurred. Here in the UK, the epidemic took effect in March 2020; businesses may have had their audits completed during this period but they would reflect the previous year’s results prior to the epidemic. We shall not know how severely most businesses have been affected until their financial accounts are submitted which must include the period of the covid-19 crisis. At the moment we do not know when this will end.
Publicly-quoted companies are an exception to the above because they have to report quarterly results and it is possible to see more accurate figures as to what the true financial situation is at the time. Already we can see for such large public companies substantial decreases in profit and pessimistic forecasts in many areas.
What needs to happen for it to improve?
What needs to happen and what will happen are separate matters! Most business directors rightly consider that strong goodwill between them and their customers is of paramount importance; therein lies the conundrum because if their valued customers do not pay on time, they worry that by insisting for prompt payment or pressing for payments on invoices that are overdue for payment, they will lose goodwill and they may go to another supplier.
In our experience, our company having been in the B2B collection business since 1914, we can state categorically that because of asking politely but firmly for what one is rightly owed does not generally offend or cause loss of business. Thus, the preconception of losing goodwill by insisting on payment is a gross error. The way businesses can improve their situation is to state their credit terms fairly and clearly before granting credit. We at CPA recommend that new customers complete a simple credit application form which at the base, above the signature, appears a standard phrase such as “I/we the undersigned on behalf of the above business agree to pay invoices within your stated credit terms. We understand that if our payments fall overdue, late payment compensation and interest may be applied in accordance with the Late Payment of Commercial Debt (Interest) Act 1998 and the Late Payment of Commercial Debts Regulations 2002.”
What are the current mechanisms open to small businesses for chasing down late payment?
This is a straight-forward matter, even for the smallest business. Ideally a dedicated person, whether a full or part-time employee, should ensure that new customers complete and return the credit application form. Also, that all invoices restate the original credit terms such as “Payment due net 30 days” or “Within 30 days following the date of invoice” or “Within 30 days of the date of this invoice/delivery of goods whichever is the later” etc, etc.
Within a week of the payment being due, either a phone call or simple email should be made/sent to chase up payment. If there is no payment forthcoming within 14 days maximum of that date, it is recommended that action is taken sooner rather than later by passing the account to an outside agency such as CPA to follow up in a professional manner.
When customers get into the good habit of paying on time, then this good habit is likely to continue thereafter.
Don’t let Covid-19 bust your business!
It will if your cash flow dries up, either sooner or later.
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for sometime to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. Above all tactfully, because maintenance of goodwill is paramount.
To meet the needs of creditors in the current crisis, we have designed a “critical care” package especially tailored for the situation.
- The annual package costs start at very low rates
- A minimum performance warranty is provided
- Several complimentary services included
Clients instruct CPA on-line via their PC or phone, completely user-friendly. Your late paying customers are told to pay you direct (not to us).
A very recent report shows a 23% increase in the number of unpaid invoices since March 11th THIS YEAR – are you getting a build-up of late payers?
Right now, overdue accounts must be a concern and CPA has a great track record of encouraging slow-payers to pay their suppliers quickly.
It takes less than 17 minutes to see how you would benefit, do you have the time now?
No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
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 your 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.
You might be hesitant about contacting a debt collection agency. What are they going to be like?
Can they help your particular type of business?
There is no need for concern. CPA are courteous, helpful and very probably have had direct experience of working with your type of business.
Debt collection agencies are not all alike.
Success lies in both recovering money and keeping customers happy. The Credit Protection Association was founded in 1914 and has helped tens of thousands of UK businesses to collect outstanding payments and reduce the risk of incurring bad debt. We believe that creditors deserve to be paid for the work or goods they have supplied but we fully understand the need to maintain
the best possible relationship with customers!
At The Credit Protection Association, we provide solutions, advice and back-up in all areas relating to the supply of services or goods on account. Client-members receive everything they need from a single source to reduce debtor days and write-offs.
The Credit Protection Association has helped has assisted tens of thousands of UK businesses with their credit control requirements, since the First World War.
We are polite, firm and efficient when it comes to recovering outstanding debt.
“We have used CPA for a number of years now. The website is easy to navigate around with lots of helpful reports. The staff are always at hand and very friendly. CPA has helped us reduce our debt over the years and keep track of potential issues with our customers.”
~ CPA client in Buckinghamshire
“The service from CPA has proved to be everything that you said it would be. We have already seen a huge benefit. We have had a number of overdue accounts paid promptly and directly to us. It is also a huge weight off our mind to know that once we have passed an overdue payment over to you, you take care of everything whilst keeping us informed.
~ Credit Controller client in Warrington
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.
You put up with the PAIN – now claim the GAIN!
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.
Did you know that your business is entitled to a minimum of £40 for every commercial invoice paid late to you over the past 6 years?
How many of your invoices are paid late each month – 20, 50, 100 or more?
At £40 per invoice that’s claim of £57,600, £144,000, £288,000 plus interest. The more invoices the bigger the claim!
At £100 per invoice it’s £144,000, £360,000, £720,000 plus interest.
For over 20 years, CPA has calculated and recovered Late Payment Compensation on behalf of Clients!
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.