Should I name and shame late payment offenders?
Naming and shaming has been a topic of hot debate in recent years as a way to deter late payment offenders by adding an extra risk of harming their brand’s reputation by not paying on time – but of course for suppliers, it also runs a reputational risk, as customers might be less willing to buy from a brand that is known to name and shame.
It’s a dilemma that every business owner faces, although many owners might never seriously consider publishing a list of their late-paying customers and giving away a free glimpse of their client base and order values.
But for others, especially those faced by perennially late payment offenders, naming and shaming can be a tempting way to take revenge, or at least to warn others against working with them.
Cabinet Office SME panel advisor Arnab Dutt recently told the BBC Radio 5 live Daily programme that he considers naming and shaming to be an effective deterrent against late payment, including for those late payment offenders who have been allowing invoices to go overdue regularly for some time.
He told the April 11th show: “It’s something that I have been suggesting for some time, I think it is important. A lot of businesses will do what they can to get away with what they can, and that’s what they’ve been doing for a long, long time, using SMEs as their banks. Unless they’re named and shamed, they will continue in this bad practice, it’s very simple.”
Alternatives to naming and shaming
If you don’t want to publicly name and shame late payment offenders, then an alternative is to compile an internal list of those who regularly pay late, and calculate their negative impact on your cash flow to decide when enough is enough.
By keeping a list of overdue invoices – and of who owes you the payment – you can easily see at a glance what your total outstanding amount is, as well as how long it takes beyond payment terms for people to pay you.
Effective credit control is about minimising these figures, to get as much outstanding money into your business account as possible, as quickly as you can, in order to give your company cash flow a double boost.
When a large customer becomes an unacceptable liability, you have the option to start debt collection proceedings against them, which can start with a simple but strongly worded reminder that the payment is overdue – often enough to trigger payment without jeopardising the contract at all.
For those who still do not pay, eventually you need to decide whether it is worth working with them. Again it is important to keep a list in this instance, of companies you have decided you will not supply again in the future – a so-called ‘stop list’ that is not made public, but is a point of reference to protect you against letting that customer run up any future debt that you do not believe they will pay.
Public naming and shaming is still relatively rare, and you should be sure before you take any such action, as in the most severe cases the customer might consider launching legal action against you in response.
But with ways to keep internal records on late payment offenders as part of your own credit control processes, there are similar measures you can take without making the information public, but which still add to your information about your own cash flow, and the biggest threats you face due to late payment.