Slow Payers – The hidden costs.

Credit where credit is due

Giving credit to customers is an established feature of business to business (B2B) transactions and without it the economy would not be able to function efficiently.

However, whenever goods and services are provided ahead of payment, it can leave the supplier vulnerable to payment delays, which is a business risk.

It is therefore essential that businesses have sound credit management skills and policies in order to prevent late payments and, worse still, bad debts from eating into profits.

Regardless of what a supplier does and no matter how rigorous they are, it is unlikely that they are going to avoid all late payments.

Late payment culture

Many businesses, especially small businesses, experience considerable difficulties from their customers failing to pay their debts on time. Many customers will use late payment as a cash flow tool, passing on the working capital cost to their supplier. The supplier in turn is forced to delay payments to their suppliers and the late payment bug is passed on like a virus in the business community.

In some cultures it is almost expected. It is normal practice and business owners are forced to factor it into their plans. They often don’t think that there is really a problem. They expect they will be paid eventually. “No it’s definitely not a problem” they tell themselves.

According to figures released by BACs Payment Schemes, small to medium-sized enterprises, or SMEs, are owed a total of £14 billion by customers. The practice of late payments is leaving them with a bill of billions of pounds every year.

More than a third of SMEs across the country say payments are often prolonged way beyond agreed terms. The impact of late payments can often be devastating: one in five small businesses say that they face being driven into bankruptcy if they are owed between £20,000 and £50,000. Some 7 per cent of businesses say they are already in that danger zone.

But I am OK

Probably 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?

So where is the harm?

The Government recognises the damage done by late payment and they have taken significant action to tackle the problem.

The UK is one of the best places in the world to start and grow a business. It is home to a record 5.5 million businesses:  that is one million more than in 2010. Small and medium sized enterprises (SMEs) make up 99.9% of all UK businesses. It is perhaps unsurprising that 60% of all private sector employment is created by SMEs, who contribute 47% of all UK private sector turnover.

Late and unfair payment practices are one of the most significant threats to small business survival, tightening cash flow and impairing their ability to self-invest and grow.

Late payment leads to cash flow difficulties which in turn kill off businesses that would otherwise be successful. After all, cash is oxygen to a business and without it they will surely perish.

When you are not paid on time, you have to allocate resources to collecting what you are owed. You either have to do the job yourself or employ someone to do it for you. The former option is time consuming and not the most enjoyable of tasks.

What do you say to a slow paying customer? How soon do you chase the money? When should you start to apply pressure? (Or should you apply pressure at all?) Will you lose the goodwill of the customer? Do you have time to do this? If you employ someone in your business as a credit controller, that means an additional wage and all of the associated costs of having an additional member (or members) of staff. For larger enterprises, this is fine, however even credit management professionals need additional help from time to time to get the job done.

In addition, you have to deal with the distraction of chasing payments or managing the additional staff. What is more, you have the opportunity cost of not having the cash in your account but in your customers’ bank account.

Studies have shown that for most businesses the cost of late payment of invoices exceeds write offs

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.”

The Solution

The Credit Protection Association can help speed up slow payers. We can turn late payers into good payers. And we can give you the information you need to avoid the bad payers in the first place.

Successive Governments have used either legislation, example or exhortation to improve standard practice going back to the Late Payment of Commercial Debts (Interest) Act 1998, which introduced a statutory right for businesses to claim interest on the late payment of commercial debts.

Prior to that legislation, the Forum of Private Business estimated that 89% of small and medium sized businesses in the UK were paid late: on average, these businesses were paid 81 days after the invoice, or 51 days after the average due date.

It was thought that it would be better to develop a climate of prompt payment rather than to legitimise late payment by legislating for it and that small businesses wouldn’t make full use of the legislation’s power.

Initially the Government tried to lead by example with the Prompt Payment Code.

However after a few years with the prompt payment code failing to have a material effect, legislation was brought in. As feared though, businesses still hold back from making full use of its provisions as they do not want to risk souring the relationship with their customers.

The Credit Protection Association has for over 100 years been prompting punctual payment for its members.

We can and do achieve prompt payment while maintaining your customer’s goodwill.

In a few cases, those slow payers become bad payers, or non-payers. In those cases where the relationship cannot be maintained, CPA can help you to use the full weight of the legislation to make sure that you are fully compensated for late payment.


You do not have to accept late payment or the culture that surrounds it. You work hard in your business and a significant part of your work is supporting late payers. A change is long overdue with regards to the damage that late payment does to small business throughout the UK.

Successful businesses get professional help when and where they need it. You can’t do everything yourself, can you?

The Credit Protection Association is a credit management company established in 1914. We have probably worked with a similar business to yours. If you supply goods or services on credit then we can help you! We know how important your customers are to you and we are polite and courteous in our approach to communicating with them.

CPA provides Business Owners and Credit Managers with all that is needed to work effectively including credit information, debt recovery and credit protection. Our aim is to develop these services still further to meet changing market needs.

Watch the video to find out how CPA can help you.

Read Our Blog – How to overcome common excuses for non-payment

Read our blog – Debt collection agency

Read our Cash Flow Advice

Read about our overdue account recovery service

Read our blog – What is credit management?

Read our blog -What is a credit management company?

Read our blog -Credit Management that works!

Read our blog – How to select a debt collection agency

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