In its survey, the FPB found 51% of the 500 small-business respondents believe late payment of invoices by trade clients to be a problem, 23% consider it a ‘serious’ problem, and 16% – that’s almost a sixth of all the companies surveyed – have nearly gone out of business because of it.
Knock-on problems caused by non-payment range from a lack of funds available for investment (affecting 23% of companies whose clients have delayed payment in the past), erosion of profits (45% of cases) and an inability to pay their own suppliers on time (56%).
With the economy already in turbulent times – and official figures this morning indicating that the recession has returned in a widely anticipated ‘double dip’ pattern – it’s more important than ever for companies to protect not just their annual profits, but also their operating income and available cash flow.
The study gives an insight into some of the reasons given by companies for late payment – and few of them will sound particularly fair to anyone who’s been affected by non-payment in the past.
One in seven clients (14%) decided for themselves that they should receive a discount for prompt payment, despite having no such agreement in place from the outset; 23% refused to pay while querying the promptness of their delivery or the quality of the product; and a massive 65% of the survey’s respondents have had to cope with clients spontaneously extending their payment deadlines without warning or permission.
FPB chief executive Phil Orford sums up the findings: “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.”
So, what are companies doing to counteract the problem? It’s a curious mixture of using formal credit control procedures, and effectively making it up as they go along…
Making the Most of It
Nearly a sixth (16%) of respondents admitted to the FPB that they simply juggle payments on an as-and-when basis in order to keep their cash flow as healthy as possible – an approach that is likely to play a part in those who have been unable to pay their own suppliers at times in the past.
For 38%, almost 200 of the 500 firms surveyed, it’s a case of combining informal client-chasing with more formal processes, while just 44% of the total have a formalised credit control system in place to deal with invoicing and payment chasing from start to finish.
In a third of cases, companies are taking a financial hit by offering discounts or incentives to those who pay promptly – yet, by comparison, 30% are negating the burden of non-payment by adding interest to the amounts they charge their clients.
Nearly half (43%) of those surveyed are, at least, protecting their cash flow against minor hits, by keeping a reserve of funds in the company account to compensate for any particularly bad periods in terms of client payments.
For the companies that are affected by late payment, there are plenty of attempts to counteract the negative impact, but they are of varying levels of success.
More than three in five (61%) of the surveyed firms say they refuse to take on new work from the relevant client until the invoice is paid, which could put their future earnings at risk if the delay is legitimate.
Nearly four in five (79%) chase non-paying clients by telephone, taking valuable time without the guarantee of receiving a payout.
And over 45% of the study’s respondents admitted that late payment from their own customers has led to them paying suppliers later than intended, highlighting the knock-on impact of non-paying clients.
What We Can Do
We offer several services to help you make sure your clients pay you as agreed, and we prefer a proactive approach – where debt collection becomes a necessity, we like to be able to investigate the debtor before any legal proceedings commence.
Our debt collection services are charged on a percentage commission basis, rather than by the hour, so particularly awkward non-payers shouldn’t end up costing you more to have us chase them on your behalf.
Hopefully things won’t get that far, though – and we can provide services to reduce the risk of taking on a notorious non-paying client from the outset.
Our comprehensive credit checking service can help you to decide whether you should allow a new client to open a customer account at all, and can also give you the information you need in order to set their credit limit at an appropriate level.
We can often identify the directors of a particular company during the credit check process, so if you prefer the personal approach, it can help you to get in touch with those in charge.
Finally, our credit control service connects the dots from taking on new clients, to retrieving any delayed payments.
Our credit control services operate separately from any debt collection we carry out on your behalf, so long-term and reliable clients have no cause for concern.
We contact clients to make sure they have received and logged invoices, so nothing gets missed by genuine accident, and can follow up non-payment with appropriately worded letters and, ultimately, final notices and interest letters (which will be issued with your authority if other measures fail to yield prompt payment).
The whole service is designed to improve your invoicing process, ensuring reduced delays from invoices being issued to payment being received, and reassuring your company directors, shareholders and banking providers.