Has late payment become an acceptable culture?
We all understand the devastating impact that late payment can have on a firm when cash flow dries up and business growth is put on hold.
Trade body R3, conducted a recent survey of the insolvency profession which found that over the last 12 months, the primary cause for 23% of all insolvencies was due to the late payment for goods or services, whilst the failure of a supplier or customer accounted for 20 per cent of cases. The results show a worsening trend - in 2014, late payment was the key factor in 20% of insolvencies – reflecting a 3% increase in 2 years.
The impact of late payment on insolvencies is compounded in that in the event of any business failure there will always be creditors who will not receive payment for goods or services delivered. This in turn can have detrimental effects on a firms’ health. Experience also tells us that when the economy enters a cautious or challenging time, businesses hold back on invoice payments preferring to retain cash in their own bank.
The construction sector appears to be the worst affected with more than half of insolvency practitioners identifying this sector as the one with the worst record for late payment.
So why despite high profile Government intervention does it continue to be an ongoing issue when we all acknowledge that it can have devastating effects?
Lets’ look at what is being done? The last decade has seen the introduction of legislation enabling small businesses to charge interest on late payments but this has had little impact with smaller businesses reluctant to apply the legislation to their larger customers who in turn resort to extending their payment terms to avoid the issue.
Late payment continues to be a destructive issue for small and medium sized firms and despite talk of a ‘name and shame’ website by the Government in the run up to the 2015 election, its implementation has had little effect. Some real tangible action is needed to call a halt to this damaging culture by larger firms. It’s time the Government got serious on this issue and put into place, actions which will drive real changes to poor payment behaviour.
An interesting recent move has been the Governments’ announcement that they plan to appoint a small business commissioner in 2017, who will be responsible for pursuing this area in order to improve the culture around payment of invoices. Time will tell whether this move will deliver the concrete change required.
So what can firms do to ensure the health of their businesses? Ensuring they have a flexible funding solution in place is key. Invoice Finance is an appropriate form of funding when tackling late payment with an increasing number of UK businesses accessing this form of funding to ensure they have a healthy cash flow. The total amount of funding that UK businesses secured through invoice finance has passed the £20 billion barrier for the first time, hitting a record £20.3 billion this year, up 5 per cent from £19.3 billion last year demonstrating its popularity and the increasing shift away from more ‘traditional’ types of finance to help finance their business growth. Invoice Finance is now one of the primary ways that small businesses access funding because it offers greater flexibility, competitive fees as well as the ability for deals to be done quickly.
We continue to be open for business to support firms for funding solutions to counteract late payment or to help drive grow