Late payments are never good for business. What can you do?
16th August 2019.
Late payments just a reality of doing business?
For most SMEs selling on credit, late payments are just part and parcel of doing business.
Nobody expects to actually be paid on time.
“Better late than never” we will say.
When payment arrives a few days after the due date – brilliant.
We almost expect to have to send a statement to prompt payment. Of course they are not going to pay until they have been chased at least once. Whether it’s a letter, an email, a statement, we can’t expect payment to arrive unprompted?
If payment comes in 7 days after the due date there is no real harm surely?
OK so payment was a few weeks late – – they did pay in the end didn’t they?
So they purchase ledger clerk was on holiday, the signatory was in meetings, the first cheque they sent went missing in the post. Their online banking app was on the fritz. The money did arrive after a few phone calls and chases. It was only a month late.
That is just a reality of business. You just have to accept it as a cost of doing business on credit.
No.
Late payment is a breach
This is not a reality you should accept!
The due date should be the last date possible for the payment to arrive. On the due date the funds should be clear in your account.
Too many customers view the due date as the date to start thinking about arranging that payment. Those 7,14 or 30 days after the invoice was raised were just free credit.
Rather than a deadline, the due date is viewed as a starting line. “Oh that invoice is due now, we better start getting the payment organised”
But a late payment is a rudeness and a breach of contract.
You agreed a contract to provide goods and services at specified time. If you had been late they would have screamed.
You priced the job on the cost of providing your goods and services.
But I am OK
Perhaps you are among the majority of business owners who are not yet in the danger zone. I expect you do not think that you have a problem with getting paid.
You might cite the fact that you have very few write offs, as evidence that you don’t have a problem.
When pushed, you will probably accept that not everyone pays you on time. Actually very few people pay their debts on time or pay early.
The good payers are few are far between. You probably take notice when a customer pays you as soon as the invoice arrives. The money appears in your account without the need of a reminder. You have given them 30 days credit but they never take it. You never have to wade through their excuses; you never have trouble contacting them. Oh how you wish you had more like them! Treasure them! They are like gold dust.
No, the majority of your customers are OK payers. Sure you need to send them a statement. Perhaps you need to phone them or email them to remind them to pay you. Yes, your payment terms are 30 days, but they process their payment runs at the end of the month and your invoice wasn’t due at the last month end.
Sometimes they need a few reminders. That 30 day invoice gets paid 30 days after the due date. If you are lucky that is. The last invoice was paid some six weeks after the due date. But the Accountant had been sick, and the invoice got lost, and then the first cheque they sent was lost in the post.
But you got paid in the end, didn’t you?
If they regularly pay you late, then they are not good payers. They are slow payers.
And those slow payers really are harming your business, aren’t they?
Just because you don’t have write offs, doesn’t mean late payments don’t cost you anything
Let us imagine a business. Let’s call them ABC Widgets Ltd. John Smith is their CEO.
The company is a £1 million turnover company. Their profit margin is 10% and they typically have £100,000 owed beyond terms. They don’t think they have a problem with late payment.
They only had to write off £5,000 in bad debt last year. People pay them eventually.
After all, £5,000 is not a lot when you are turning over a million pounds, is it?
A startling credit management calculation
On a 10% profit margin, they need to do £50,000 in sales to make up that loss.
Still they may feel they can live with that. It’s the equivalent of a few weeks work.
At the Credit Protection Association plc we would ask this question:
“John, what do you think it costs you to have the £100,000 of overdues in your customers’ bank accounts, rather than in your bank account?”
For business owners having to rely on financing, the costs are clear and significant. Faced with this question many established SME owners have no idea and will admit it.
“When we have put that sort of money back into our Members’ accounts, they say they use the extra cash to either buy in bigger quantities or offer to settle selected accounts early, or both! They tell us that they never make less than 1% per month doing that. Could you negotiate that sort of deal?”
Interestingly, a Grant Thornton 2016 Working Capital Survey found that companies that manage their capital efficiently can outperform their peers in revenue growth by two percent.
Properly managing the capital tied up in your sales ledger can have a dramatic effect on your business.
What is 1% of £100,000?
Could you save £1000 a month if you had that sort of additional capital?
Could you invest that cash to make an extra £1000 a month?
£1,000 per month is £12,000 per year.
That £12,000 is significant.
ABC Widgets Ltd may not have had many write offs. However they are losing more through slow payers than they are as a result of write offs.
To cover that £12,000 cost, ABC Widgets have to do £120,000 in sales, that’s over 6 weeks work!
A Few years ago the Government department for Trade and Industry confirmed this is common place, stating “The Interest cost of waiting for late payment can be bigger than bad debt losses”
Combined, those late and bad payers are costing a total of £17,000 plus the administration, wages and perhaps most expensive of all – John’s time.
John, with your net profit margin at 10%, you need £170,000 of extra revenue just to pay for your credit control, don’t you? That’s, nearly two whole months of your turnover.”
More than just an inconvenience
Late payments are more than an inconvenience. You shouldn’t have to factor in the cost of late payment into every contract – the finance cost and the time and cost spent chasing payment.
That doesn’t even take into account the other costs to you and your business. The simple distraction it causes. Not to mention the worries caused by late payment nor the opportunity costs of the things you couldn’t do until your cashflow was restored when the payment eventually arrived.
Yes, for the majority of SMEs and new businesses, late payments represent more than just a mere inconvenience.
Software company Xero found that on average, a staggering 48% of invoices issued by small businesses were paid past their due date in 2018 – nearly half of the nation’s SME invoices (in their millions).
Not only does this have major repercussions for the financial health of the business, but it is also a major distraction for small business owners and can lead to needless stress and anxiety for both the owners and employees – as well as damaging all-important business relationships in the long run.
This is the reality behind Britain’s late payment culture.
Choked cashflow and inhibited growth
For most new business and SMEs cashflow is a daily struggle. Not many businesses are sitting on a cash mountain that means they don’t have to worry about being able to pay their employees and suppliers themselves, if their customers are late in paying.
Delayed payments can really choke the cash flow of a business. An SME’s incomings and outgoings become even harder to manage when that relied on payment doesn’t arrive. When cash flow starts spiralling out of control it can have a severe impact on productivity.
With 50,000 businesses failing each year due to cashflow problems, the delayed payment of a customer can result in serious consequences or even worse still be a fatal blow to the company.
Xero’s Small Business Insights report found that over a quarter of SMEs pay their suppliers late as a result, racking up a debt of over £50 billion per year across the small business community. While bigger corporations may find this easier to swallow, this is a ‘luxury’ the majority of SMEs simply can’t afford.
With over 30% of small business owners claiming they would be more productive if it was not for cashflow worries, it is clear that regular late payments will inhibit future growth.
Without access to the funds that are duly owed, SMEs will find it difficult to invest in the staff, machinery, stock and technology needed to build their business and drive growth.
If we could imagine a magical world where invoices were always paid on time, 28% of business owners agreed they would feel more empowered to make big decisions. Affecting the self-confidence of entrepreneurs, it is clear that overcoming the late payment culture in the UK and resolving the instability caused by choked cashflow has the ability to go beyond simply balancing the books.
Losing sleep over late payments
The government accepts that small businesses are the backbone of the UK economy.
According to Theresa May’s Thriving at Work review however, poor mental health in the workplace costs the economy up to £90 billion per year.
So the health and wellbeing of those in the UKs small businesses is vital and anything that affects it is costly to the UK economy.
With late payments responsible not only for negative cashflow but also a lack of growth and indeed a threat to the very existence of thousands of the UKs SMEs , it’s easy to see why entrepreneurial small business owners can be deeply affected by late payment.
52% of SME owners have been forced to borrow the cash required from family and friends.
Many report serious damage to relationships at work and at home, caused by the stress of trying to hide financial issues from colleagues and loved ones.
43% of SME owners admit to losing sleep over the financial health of their business, for 37% the mental anguish alone causes them to give up on their business entirely
It is clear the mental health issues caused by financial uncertainty alone are having a detrimental effect on the UK economy.
So, what can be done about it?
The fight back
With the right support and processes in place, Britain’s small businesses have the power to take better control and fight back against the late payment crisis.
As we have written about many times, increased government focus on the issue and making use of the tools and legislation provided, clients can be encouraged and incentivised to pay for goods and services on time, here are a few tips for fighting back against late payments.
No 1.
Monitor your customers!
This may seem simple but you’d be surprised the difference it makes.
This means reviewing your sales ledger on a daily basis. It is useful to keep a close eye on who are approaching deadlines and who have missed them!
Giving your customers a quick email or follow-up phone call as their payment day approaches can also allow them to voice any concerns and confront any problems head-on.
At the Credit Protection Association, our credit monitoring services are championed by our Members. The CPA credit reports, credit rating information, directorship register and County Court data all help business owners record the progress of customers and suppliers, flagging any financial difficulty and bad payment practices.
No. 2.
Check the invoice!
This is an all-too-common issue
Payment is frequently delayed or disrupted by minor invoice errors. Bad payers will jump on any excuse to disrupt payment, so don’t give them one.
Double and triple check the company, name, amount, credit score etc BEFORE you send out the invoice. Sending the invoice by email as well as by post can also prevent any standard “it got lost in the post” excuses. Another follow-up call would be useful here as well, just to check the invoice was received and all is well.
The accounts team at the Credit Protection Association is pedantic to a fault, and we encourage our Members to follow suit. At CPA we have a very successful email recovery system and understand that ‘snail mail’ is not always the most reliable and/or quickest method.
No. 3.
Agree on the terms upfront!
This is probably the most important point and the very first thing that should be done.
When beginning any new business, set your expectations first. This means how long they have to pay and what penalties are in place for late payment. Also make it clear what work is needed, for how long and how much.
If everything is put on the table early, this should prevent payment disputes or misunderstandings further down the line.
The team at the Credit Protection Association has the expertise to advise on how to word your contract and how to handle any fallout. Get in touch!
No. 4.
Maintain a positive relationship
Do not allow any personality clashes to show in your communication with the customer.
Customers are more likely to pay on time when their supplier is polite and courteous. It also helps to keep an ongoing rapport by email or telephone to ensure they communicate any issues.
Of course, a tougher approach is sometimes necessary if the customer refuses to pay or take ownership of the debt. In this case, adopt a firmer tone, but always remain polite. Never raise your voice as this will merely escalate the matter.
At the Credit Protection Association, we enjoy congenial relationships with our Members and encourage them to pursue as such with their customers and suppliers.
In business, being mean never keeps them keen.
No. 5
Make paying easier!
Simply put; the easier the better.
In this digital-thinking generation, everyone wants everything quickly and easily. This is the same with credit control. The easier you make it for customers, the more likely it is they will pay. And pay on time.
Th.s can be achieved through methods of payment. Offer customers a greater variety of payment methods, such as credit card, direct debit and standing orders. Paying by cheque is traditional but unreliable and not particularly convenient for those who live a great distance from the nearest bank.
Just as paper invoices get lost in the mail (see no.2), so can cheques!
Here at the Credit Protection Association, we have not hesitated to adopt modern concepts. Our standing orders and direct debits have allowed our Members to pay discreetly and swiftly. We have also found they have fewer excuses not to!
Of course, if the customer is still not paying, we strongly encourage bringing in an external credit controller like us at The Credit Protection Association!
No. 6
Make late payment unattractive
Use late payment compensation and interest to make your business customers pay when they pay late.
Once businesses realise they are going to have to pay for late payments, they will suddenly become far less attractive.
Many business owners are worried about the damage this could cause to goodwill. However if you have made it clear from the start that you will add these charges if payment is late, then that is limited.
Remember late payment compensation can be requested retrospectively, up to 6 years after the payment is late.
So even if you do not want to enforce the late payment compensation immediately, once that customer ceases to be a customer and the goodwill factor has gone, you can go back and ask for the compensation on late payments over the last six years.
CPA is championing this use of the legislation and has developed the software and expertise to make these claims.
More help can be found below:-
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