Late Invoice Payments Continue to be a Big Problem for British Businesses
If there’s one aspect of running a business that’s sure to frustrate, enrage and even keep business owners up at night, it’s late payments. We’re preaching to the converted here, because almost every small business owner out there will have, at one time or another, been on the receiving end of a late payment, and frankly, there’s nothing worse.
When you work hard to deliver a customer’s order on time and provide a high level of service, you expect the same level of professionalism in return. However, more and more business are being pushed to the brink of insolvency by customers who delay making payments for reasons known only to them.
The extent of the problem
Late payments are the scourge of the UK’s small business economy. Those might sound like strong words, but not when you consider just how far reaching the impact of late payments can be. Research from YouGov and ACI Worldwide has found that 48 percent of SMEs are frustrated with delayed payments. But what negative impact do late payments have on wider business success?
- 33 percent of respondents said late payments affect their ability to meet financial obligations on time;
- 17 percent said late payments have a negative impact on staff up-keep, including salaries, expense reimbursement and recruitment;
- 10 percent said late payments hinder their ability to access finance for equipment, product development and research.
The impact of late Invoice payments
New research by the insolvency and restructuring trade body R3, has found that late payments were responsible for more than one fifth (23 percent) of all corporate insolvencies in the UK in the last 12 months.
The government has made efforts to improve the current culture of late payments in the UK. The Prompt Payment Code, which sets standards for payment practices and best practice, was amended in April 2016 to include new measures to tackle late and unfair payment. This includes measures to promote and encourage large firms to commit to 30-day payment terms as standard, with a 60-day maximum.
However, the latest research shows the problem hasn’t improved since 2014, when a previous survey found late payments were a primary or major factor in 20 percent of corporate insolvencies. Clearly it’s back to the drawing board if the government wants to improve this situation.
Andrew Tate, president of R3, said: “The serious implications of late payment are recognised by the high profile the issue now commands. Unfortunately, government promises and other initiatives don’t appear to have yet made any real impact on the scale of the problem”.
Taking steps to protect yourself
Even if a business has a great product and fantastic staff, things can still go wrong very quickly if it has one or two major customers who are consistent late payers. On the surface of it, this can seem like a factor that’s outside of a business’s control, but there are plenty of steps you can take to protect yourself.
Andrew Tate continues: “Businesses must not become complacent when it comes to checking who they are trading with. If a business is not paid upfront, it is essentially acting as a lender – albeit without the protections a secured lender enjoys. Keeping track of invoices and getting paid is vital.
As a company rescue specialist, we’ve certainly seen our fair share of businesses succumb to the pressures of late payments. However, this is a situation that can be reversed.