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The ongoing issue of late payment culture

The ongoing issue of late payment culture

The ongoing issue of late payment culture

Late payment culture continues to be the bane of many small and medium sized businesses. They can damage cashflow, prevent investment opportunities, and can ultimately cause businesses to close.

Why is late payment culture a concern?

According to analysis by Barclays bank, more than nine in ten medium-sized companies are waiting on overdue invoices to be paid, with the rate at three in five across all SMEs. 

The Federation of Small Businesses (FSB) has warned that late payment culture, as well as rising costs and Brexit red-tape, are threatening the viability of many small businesses and estimate that potentially more than 400,000 may close because of these issues by the end 2022. 

FSB national chairman Mike Cherry said: “The small business community diminished in size over the past year and, unless action is taken now to tackle the challenges it faces, history is set to repeat itself.

 

“Late payment was destroying thousands of small businesses even before the pandemic hit – the pandemic has made matters worse. In the past, the government has rightly identified greater board accountability as key to spurring change in this area, but delivery has been slow.

“The pandemic is absorbing bandwidth, and rightly so, but policymakers need to understand that late payment is the issue that keeps thousands of entrepreneurs up at night, and one that has worsened in lockstep with lockdowns. We need to see words turned to action.”

 

Liz Barclay, the Small Business Commissioner, stated, “We need to see potential investors refusing to invest in firms that don’t treat small suppliers well . . . A change in payment culture is decades overdue.” 

Whilst the government tries to address this problem with initiatives such as the Prompt Payment Code, we would recommend a proactive approach if late payments are affecting your business. It is very easy to get caught up in the day to day running of the business, but it is vital to set up a robust invoicing and credit control system and chase up unpaid invoices as soon as possible to see where the problem lies. It may be as simple as the customer hasn’t received the invoice or the goods didn’t arrive. Disputes are inevitable, but the sooner you are aware of them, the sooner the issue can be resolved. 

Conclusion

Ultimately you need to stay in control of your credit. You might not want to lose business but a customer who does not pay is not a customer. If customers are happy with the product or service, they should be happy to pay for it. 

If you're struggling with unpaid invoices, The Directors Choice have various trusted debt recovery firms that can maintain your relationships, as well as options for invoice financing to help with your cash flow. We also have a panel of expert accountants which can assist you.

 

 

Blog by Fairhurst Accountants

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