Customers persisting in changing payment terms without consultation
Credit control procedures help tackle the late payment problem
Only a third of companies (33%) of respondents offer prompt payment incentives, while just 30% use existing legislation to charge interest on late payers and 40% use cash flow management software. In addition, debt collection agencies are employed by 42% of respondents, 43% keep a reserve in the bank to offset late payments and invoice discounting is seen as a solution by just 26% of businesses.
The report's findings came under the spotlight today at a House of Commons summit, hosted by Graydon UK and the Forum, alongside representatives of the Government's department of Business, Innovation and Skills (BIS), the Labour Party, the Institute of Credit Management (ICM), the Association of Certified, Chartered Accountants (ACCA) and Lloyds TSB Business.
Speaking at the event, Gordon Skaljak, External Spokesperson, Graydon UK, commented: "The current economic climate makes it more important than ever that companies clearly understand the risks and opportunities associated with their operations. This includes identifying the cash flow and other risks triggered by the late payment of trade invoices by customers.
"Companies cannot achieve sustainable growth if they aren't paid on time consistently. This is why having a formal credit management process based on reliable, accurate customer payment behaviour information is essential for businesses who want to transact with confidence and fulfill their sustainable growth potential.
Gordon Skaljak added: "But while credit reference agencies such as Graydon UK are business counselors on managing this risk, the business community and the Government must join forces to protect companies by stamping out the UK's late payment culture."
Phil Orford, Chief Executive of the Forum of Private Business, said: "The research shows just how damaging the late payment of invoices is for small firms across every sector. It decimates cash flow, kills growth and innovation and ultimately forces businesses to the wall.
"We need to do two important things – first, communicate to business owners exactly what they can do proactively to minimise late payment, including putting in place robust cash flow management procedures and even simply invoicing properly and on time, then we need to provide the support and services they need to make tackling late payment a standardised business process.
"Second, we need to persuade large corporations to embrace paying their suppliers on time and in full, avoiding the temptation to impose damaging, retrospective changes to terms and conditions, so that prompt, proper payment washes down the supply chain.
"These are the aims that are squarely in our sights and we are committed to working with the Government and other agencies in order to achieve them."
Firms know how to tackle the late payment problem
- 59% of respondents said they pay their suppliers late, either intentionally or unintentionally, with 77% of these citing late payment from their own customers as a reason.
- Other factors leading to late payments include: insufficient funds (70%), concerns over the quality of work carried out by suppliers (61%) and a lack of affordable finance from banks (55%)
- Businesses suffering more from late payment are more likely to use cash flow forecasts but less likely to use management accounts, according to the research.
- The figures show that 85% of businesses check their cash flow at least once per week, 54% daily and 31% weekly – but the frequency of these checks most often depends on how serious the late payment problem is.
- Favoured methods of assessing cash flow are via bank records (80%), sales ledgers (70%), management accounts (68%) and cash flow forecasts (53%).
- The vast majority of firms (81%) believe late payment is a private sector problem but almost fifth of respondents (18%) pointed to public sector organisations as the main culprits.
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