With larger companies being named and shamed as the main culprits of late payment according to recent research from the Federation of Small Businesses (FSB)*, Bibby Financial Services is urging small business owners and managers to take precautions now to avoid falling into the late payment trap.
Typically taking up to 64 days* to pay invoices, delayed payment by larger companies can cause a ëmake or breakí situation for many small businesses. David Robertson, chief executive of Bibby Financial Services believes that large companies within the UK should be setting a good example and the stalling of payment to smaller suppliers should be an unacceptable practice.
Robertson said: ìWhile bigger companies have a larger pool of finances as a cushion against cash flow difficulties, smaller companies donít have this luxury so it is vital for them to avoid dealing with late payers wherever possible.î
Bibby Financial Services has developed the following tips for good financial practice, which will help entrepreneurs avoid becoming the victim of late payment.
Credit check potential customers ñ while it is tempting not to check a new customerís credit history, to save time, it is vital to carry out these necessary checks to ensure your customers are able to pay you for your goods or services
Terms and conditions ñ designed to protect your rights, limit your liabilities and provide you with some security, terms and conditions need to be clearly stated on all relevant documentation to both existing and new customers
Payment terms ñ these need to be set at the beginning of a relationship with a new customer and followed up with written confirmation, this way every party knows where they stand
Invoice on time ñ send invoices immediately if you donít you canít expect to be paid on time. Clearly address the invoice to ensure it reaches the correct person along with when the payment is due
Crystal clear communication ñ keeping on top of regular communication with your clients and suppliers is key. Follow up invoices with a call to confirm receipt and advise clients of any outstanding payments
Keep clear documentation ñ keeping clear records and having a good filing system will ensure you are aware of payments due and are able to keep track of them
Understand your rights - if you have a long outstanding payment, consider charging the client interest. As a small firm, the law gives you the right to charge interest on all late payments owed to you. The rate you can charge is the Bank of England base rate, plus eight per cent
Review credit checking procedures ñ aim to run credit checks on your existing clients on a bi-annual basis to ensure their financial situation has not changed
Encourage fast payment ñ encourage your customers to pay on time, offering early payment discounts if they pay within a certain credit period
Consider the finance options ñ services such as invoice finance can boost a firmís cash flow by raising finance-based on the value of sales invoices, paying up to 85% of those invoices as they are raised. The invoice financer will also chase outstanding payments on your behalf
Robertson concluded: ìMany small businesses feel backed in to a corner by the demands of their larger customers, as they can ill afford to loose a large contract which makes up a significant percentage of their revenue. Large firms have a responsibility as good corporate citizens to offer fair business terms and conditions to their smaller counterparts.î
*www.fsb.org.uk, Press release, Late payment still rife among UK plcs, 23rd February 2006
Avoid the late payment trap
Bibby Financial Services is urging small business owners and managers to take precautions now to avoid falling into the late payment trap
