Late payments crippling small businesses.


Late payments are having a crippling effect on British small businesses, as a lack of proper enforcement action against late-paying clients leads to insolvencies, damaged business productivity, and broader implications for the economy. According to research, nearly 1 in 4 (23%) insolvencies are caused by issues arising from late client payments. Despite this, policymakers have yet to introduce proper sanctions against businesses that do not pay their suppliers on time, leaving SMEs and others essentially powerless to guard against their own demise.

The problem is clear even in the practices of businesses endorsed by the government. According to new data, leading outsourcers to the government took over 6 weeks to pay their suppliers in 2017— a delay up 11% from 2015. This is despite ministers introducing new rules in 2015 requiring government departments to pay 80% of their invoices within five days.

Small firms feel ‘ripple effect’ of large chain failures

This culture of late payments is affecting small businesses more than anyone else due to SMEs’ relative inability to absorb losses. By being forced to wait longer for payment they are owed, SMEs – which generally have just a small cash cushion – can easily lose their short-term liquidity and even fall prey to insolvency, through no fault of their own. Even beyond insolvency and collapse however, the impact on SMEs can be profound, with companies that do manage to absorb late payment still likely to face problems including an inability to make new investments and facilitate growth, and an overall hit to business productivity.

Late payments have caused significant issues in the construction sector. The collapse of Carillion last year – which left a hefty backlog of unpaid invoices in its wake – saw hundreds of other smaller companies in the industry fall into insolvency. In the first three quarters of 2018, 2,924 construction businesses went insolvent – an increase of nearly 300 from the 2,645 affected over the same period in 2017. These figures underline the impact that a larger clients falling into financial difficulties can have on myriad smaller businesses across the supply chain.

84% of SMEs unconvinced by protective policies

The government has taken some measures to combat these effects, with the Prompt Payment Code being introduced in 2012 to encourage large companies to pay suppliers within 60 days, a Small Businesses Commissioner also being introduced, and legislation requiring companies to report their payments to the government twice a year passed in 2017. These efforts lack proper enforcement however, with no financial penalties or legal sanctions attached to any of the three, and SMEs are still largely exposed to the risk of insolvency and decline due to late payment. Indeed, an overwhelming 84% of SMEs surveyed last year said they did not believe the creation of the Small Business Commissioner role had any impact on their company at all.

In order to minimise exposure to the potentially destructive effects of late payments, SMEs must make sure to instate the best possible credit management system, ensuring that late payments are addressed as effectively and quickly as possible

How CPA can help

Don’t let your business be crippled by late payment.

As a member of CPA you could use our information and reports to avoid bad payers or set appropriate credit strategies for them.

And if you are already suffering from late payments, why not ask the professionals to chase it on your behalf?

Trading for over 100 years,  CPA have collected billions  for our members.

At the Credit Protection Association,we provide a suite of credit management services to help you avoid and deal with late payers.

We provide first class credit information that can help you avoid being over extended to customers who are at risk.

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

Our debt recovery services also chase down late payers, resolving over 80% of debts referred, recovering  money that our members can use to boost their cashflow.

Our members have used this extra cash to invest in additional materials, new staff, extra equipment or new technology,  to boost their business.

At the same time, our credit checks and credit reports are utilised by our members to investigate all suppliers and customers. It is important to scrutinise everyone within your business, to ensure their financial history will show no bad payment behaviour or maltreatment of suppliers. Our reports help avoid bad payers or being over extended to a customer beyond their means.

We come across business owners who have decided to scale back their businesses and stop selling on credit because the hassles were not worth it.

Our services have helped them trade again in confidence

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.

Phone us and ask about the clients you are worried about. If the one thing you do is call us and ask for our advice then even if you do not take out a membership, we will at least be able to give you some valuable advice.

James Salmon, Operations Director, 23rd January 2019

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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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