Bibby Financial Services today slammed the Governmentís track record on late payment. The leading business finance provider criticised the raft of legislation intended to free UK firms from the problems associated with the culture of late payment.
Phases one and two of the Late Payment of Commercial Debts Act gave small businesses the right to charge interest on late payments from large and small organisations. However, in reality, few firms have proved willing to jeopardise existing and future contracts in this way.
Commenting on the legislation, David Robertson, Chief Executive of Bibby Financial Services said, ìIt was obvious from the start that small businesses just would not want to upset the apple cart and risk damaging relationships with key customers by exercising their rights to charge interest on late payers. In fact, a tactic employed by larger firms was to extend their terms of trade, so where they would normally have paid in 30 days they extended their terms to 60/90 days to avoid being caught out under the new legislation. As early as two years ago, business support organisations were warning that up to 85 per cent* of small firms would not comply with the legislation.î
Recent statistics from Experian, the business information company, found that businesses are now waiting an average of 58 days for payment, compared with 57.5 days in 1998, when the Government introduced the legislation. In addition, payment delays in the UK are greater than any other European country, averaging 27 days beyond agreed payment terms, compared with 10 for France and 17 for Germany.
Late payment can be extremely damaging to a small businessís cash flow. In fact, according to The Federation of Small Businesses (FSB) one in four small business failures is due to late payment. The net trade debt that large businesses owe small firms is now estimated at some 20 billion.
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In order to help small businesses combat the issue of late payment, Bibby Financial Services has developed the following guidelines to help businesses improve their credit control procedures and speed up the payment process as well as detailing the most common excuses for delayed payment.
Always credit check potential customers. Winning a new customer is always exciting but ensure they are credit worthy before you commit time and resources to working with them
Agree terms in advance. Agree terms of payment with new customers as part of the sales process. Make sure they understand that the price of goods is linked to the credit terms you offer and make it crystal clear that you have a legal right to claim interest
Inform your debtors. If you have habitual late payers, contact them and explain how the legislation could affect them. Try to foster good working relationships with your customers and suppliers so that itís easier to resolve payment problems when they arise
Send out invoices as you dispatch goods. Do not delay sending statements and invoices out on time. If you donít do this you canít expect to be paid on time
Keep clear documentation. Make sure you send accurate invoices / statements to the right person, at the right place, at the right time and state clearly the date payment is due
Collect your money on time. Have a collection timetable and stick to it. If a promised cheque fails to arrive, chase it again straight away. For further piece of mind ask them for a cheque number.
Communicate effectively. Ensure that existing customers are quickly made aware of any due invoices. Re-check the credit worthiness of any customer who continues to withhold payment
Keep clear records. Any correspondence with customers should be logged, even telephone conversations
Have the right attitude. Donít be embarrassed about discussing money. Remember, if youíve kept your part of the deal you have the right to be paid. Be polite but firm
Review your credit checking procedures. Aim to run credit checks on your clients on a bi-annual basis. If there is a change of ownership of any business you should also reassess their creditworthiness
Understand your rights. The law gives you as a small firm, the right to charge interest on all late payments owed to you ñ the amount you can charge is the Bank of England base rate plus 8 per cent
David Robertson concludes, ìFor every day that a customer delays payment, a businessís profit margin diminishes. Late payment wastes valuable resources and leads to more bad debt, ruins good will and trust amongst firms and drives costs upwards.
ìRegardless of what the Government decides to do to enforce the late payment legislation in the future, it is vital that small businesses help themselves by exercising tight credit control procedures and never taking no for an answer from late paying customers.î
Bibby Financial Services Slams Late Payment Legislation
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