Penalising Big Business alone will not end the late payment culture

Last month we wrote about the new government proposals to tackle late payments.

You can see the Governments full document here : Creating a responsible payment culture: a call for evidence in tackling late payment: government response

One of the proposals was to fine large companies that pay their suppliers late.

Former small business owner and now Small Business Minister Kelly Tolhurst MP said the proposed reform – with fines as its showpiece – will ‘end the “unacceptable culture” of suppliers being left out-of-pocket.

If you click on the article we wrote at the time you can see there was a mixed response to this.

While everyone agrees something needs to be done to tackle the late payment culture, many experts do not think the governments proposals are enough.

Firstly they are just proposals. The government is notorious for making proposal after proposal that never gets acted upon, dragging its feet on the issue of late payment which in turn perpetuates this a major drag on the UK economy.

Secondly they don’t go far enough to tackle the late payment culture.

The minister’s other comments in the consultation response are right – it’s an issue that disproportionately affects small businesses and sole-person companies.

As we wrote in our earlier blog, while some of the measures/proposals announced sounds good. Especially those that hit late payers in the pocket. The fear is that the penalties will not be used broadly enough in order to truly change the culture.

Legislation already provides the tools in late payment compensation but suppliers don’t want to punish current customers – they value goodwill above prompt payment.

While they certainly would like to get paid on time and also usually agree they should receive a realistic compensation for late payments. What they don’t want to do is to take responsibility (or blame from their customers) for the compensation being applied.

CPA like the idea of fining persistent offenders but the problem is it is only aimed at big companies.

Let’s just whisper this – Big companies are not the only ones who pay late – see research below

At the moment, too many businesses – big and small – see paying their suppliers late as the cheapest form of capital and the easiest way to boost cash flow.

Measures need to be taken to change that view and to make it unattractive and expensive.

Not just for big company late payers, but small company late payers too.

This the fundamental problem with the governments proposals.

It talks very plainly about the need to “hold to account the minority of larger businesses who fail to make payments on time.” And yes there is a problem with larger companies who don’t do enough to pay their SME suppliers on time.

But it isn’t the only issue. There are more than 5.6 million small businesses employing fewer than 50 people in the UK, of which 5.4m are rated as ‘microbusinesses’ employing less than 10. In contrast, there are only 8,000 companies categorised as “large”, meaning they employ more than 250 people.

Clearly, the 5.4 million microbusinesses, sole traders, freelancers and contractors can not all have supply deals with those 8,000 large companies! In fact, the number that do are in a significant minority. And yet most of them still suffer with late payments.

The fact is that a great many of those small businesses experience payment problems not from big businesses, but from other small businesses. Indeed, the majority of small businesses work with each other in a web of transactions in which late payment is rife and self perpetuating. Most will go through problems getting paid for their goods and services on a regular basis.

If you have maybe a month or twos work overdue in late payments, you don’t care what size business it is that owes you. Actually you probably worry more about the small business debtor than you do the big boy. The Big business probably (remember Carillion) can pay you, they just don’t care to. The small business, well they could disappear over night.

Late payments result in considerable disruption and hassle for the smallest of businesses. Not only do they suffer the cash flow crunch caused by late payment, and the opportunity cost of not being able to do the things that cash would have made possible , they often have to suffer the double-penalty of having to put a lot of time, money and resource into chasing those late payments. Once the debtor fails to pay on time, time has to be spent phoning, sending statements and emails chasing payment. Often there is the additional cost of passing the debtor to a third party collector and in a few cases there is the cost of taking them to court to forced debtor to finally pay.

All that takes time, resources and money — time and resources that would otherwise been used productively running your business.

So while the governments proposal to issue penalties to big businesses who don’t pay on time might play well in the media and to the electorate, it fails to tackle a huge part of the problem.

And even if a big company is fined for paying late, how does that benefit the still unpaid supplier?

The legislation is already there but could be improved

We all need to look again at the Late Payment of Commercial Debt Act 2013, which introduced the right for creditors to claim interest, compensation and also recover “reasonable costs” incurred in recovering debts.

Sure that could be toughened up. Reasonable costs could be better defined and more encompassing.

Also they could remove the right to big business to set their own lower compensation levels in contracts by getting rid of the right to companies to set “substantial remedies” whatever that maybe.

They could also reduced the maximum payment days from 60 to 30 and remove the right of suppliers to negotiate payment terms beyond that with contrived commercial reasons.

The problem with this is that “reasonable costs” has always been poorly defined. It certainly falls short of recovering full costs.

CPA’s Solution with existing legislation

CPA’s view has been that late payment legislation already provides the tools to affect that change.

We recognise that not many businesses want to apply the late payment legislation measures to existing customers. And those customers know it too. Which is the problem.

But what about applying for late payment compensation and interest retrospectively to those late paying customers after they stop using you as a supplier and can no longer threaten you with a loss of their goodwill when you ask to be rightfully compensated?

If businesses knew that was a threat, they might change their view of late payment as a form of cheap cashflow.

SME’s are late payers too!

Research released by accounting software company Xero shows the average SME owes its suppliers £8,811. With approximately 5½ million SMEs in the UK, that gives around £50 billion in unpaid bills owed to suppliers.

UK SMEs in turn are owed an average of £23,360 in late payments on any given day, a 17% year on year increase. With consumers and big business accounting for the difference.

The late payment culture forms a vicious circle of late payments. UK SMEs are paid late by their customers, so they in turn pay their suppliers late, who in turn pay their suppliers late and on and on it goes. And all it takes is one company in the chain to topple over and a domino effect sends waves of panic through the SME community.

“It has a huge impact on the economy,” says Donna Torres, director of small business at Xero. “If small businesses don’t get paid then they’re also potentially not paying their suppliers. That’s a huge concerning number which obviously hits the economy and slows it down – it’s really worrying.”

The research also showed that about half (48%) of invoices issued by small businesses are paid late, and as a result a quarter (26%) of small business owners struggle to pay their own suppliers on time.

“What’s also quite sad is that late payments also have an impact on SME owners’ wellbeing, how they feel about running their business and how that then could put off prospective entrepreneurs; it’s sad that small businesses feel isolated,” says Torres, adding 43% of business owners said that late payments caused them sleepless nights and affected their mental health (44%).

76% agree their business feels more “worth it” without cash flow problems, and 37% have considered closing down their business because of cash flow issues relating to late payments.

SME owners have also turned to desperate funding to make up the late payment shortfall, with 52% using money from personal savings or from friends and family.

“Chasing up cash flow is not a conversation small businesses find easy,” says Torres, “that’s not why they started up their business. Small business owners aren’t using the tools that help them nor are they sending reminders or picking up the phone. ”

Could you use a professional?

As a small business owner you want to focus on your business. Partnering with a company like CPA will enable you to focus on caring for your customers and driving your business.

Debt collection is not everyone’s cup of tea, but at CPA we are happy to chase late payers for you. Having a third party make those approaches also can protect your relationship with the client.

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.

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.

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

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!

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

Read our blog here on how to crack down on the late payment culture.

Read our blog here on how to give late payers the slap they need.

The “Why” of the late payment culture.

Paying late is “crack cocaine” to big business.

Late payment culture risks “spiraling out of control”

New warning over catastrophic effects of late payments

visit our late payment compensation page

See our full blog and FAQ on late payment compensation

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.