A headline-grabbing report from the Forum of Private Business and Graydon reveals that formal credit control processes are in place at fewer than half of the UK's small businesses.
The survey looked at 500 companies across the UK, and just 44% said they had formal credit control procedures to fall back on if they are not paid promptly by debtors. However, many others admitted to making use of a spur-of-the-moment approach to payments, with 16% juggling payments as they go along and 38% mixing formal credit control processes with informal payment-chasing.
Phil Orford, chief executive of the FPB, says late payment "decimates cash flow, kills growth and innovation and, ultimately, forces businesses to the wall". "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," he adds.
Doing the GroundworkMany of those surveyed could be creating unnecessary admin work for themselves by trying to create their own approach to credit control and effective invoicing. Almost all of the respondents (97%) said invoicing promptly encourages prompt payment, while 79% follow up via telephone to persuade the debtor to settle their account. More than three fifths (61%) refuse to complete further work until the payment is made, which could sour relationships with reliable clients as well as non-payers.
But more than three quarters (76%) take a wisely proactive approach, using credit reports to determine whether a client is likely to pay them on time.
It's not just untrustworthy clients who are responsible for late payments - 59% of the companies surveyed admitted that they are guilty of late payment to their own suppliers too. More than three quarters (77%) of this group argued that non-paying clients left their cash flow too tight, forcing them to stall payments to their suppliers.
And it's not just the private sector where the problems arise, as nearly one in five (18%) of those surveyed said the public sector is the main cause of delayed payments.
Prevention and Cure
Prevention is better than cure, so what steps can be taken to help make sure your clients pay on time?
For a start, the remaining 24% of firms who do not use credit checks from commercial providers to judge whether clients will pay up are effectively gambling with their income - and it's far better to cut out that risk using credit referencing services like those provided by our friends at Experian Small Business.
A massive 56% could benefit by formalising their credit control procedures, cutting down on the ad hoc administration burden on accounting staff by outsourcing invoice chasing to a third-party service provider.
Our First Call Plus service is a great way to do this - it includes customer contact from the moment the invoice is issued, right through until it is confirmed as paid, along with a proactive, outsourced credit control service managed by us on your behalf.
It's a branded service, with an 0845 local-rate number where we can take any client queries in your company's name, ensuring seamless integration with both your customer base, and your existing accounting department.
The last word goes to the FPB's Phil Orford, who says businesses must receive the support they need in order to make tackling late payment "a standardised business process" - a sentiment we share in our delivery of First Call Plus to our own clients.
Image "£50 Notes" from Images of Money on flickr is licensed under CC BY 2.0