Monday, July 15, 2024
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Late payment still an issue

Late payment of debt is a perennial issue that refuses to go away, regardless of whatever the government, business organisations, or the law say.

And the point was well made by the Federation of Small Business’ Small Business Index published at the start of the year. It discovered a number of very worrying findings, in particular the study of 1271 business owners found that 30% had seen the late payment of invoices increase in the last quarter of 2021. General poor payment practice was experienced by 8%, and 6% had had to agree to new payment terms in that period.

As a result, the survey reckons that 8% face an existential threat to their business – they could fail. In fact, the FSB reckons that some 440,000 firms could be forced to close this year because of late payment issues alone. This number is particularly concerning since the government’s own data indicates that there are ‘just’ 5.5 million small businesses in the UK, a figure that is down by 400,000 on the year before.

The survey said that none of this is helped by the countless problems that small firms are facing, including rising fuel and energy costs, increases in the prices of raw materials and taxation, an increasing minimum wage in April, and government Covid edicts.

But while the FSB appears to have been the most vocal on the matter, payment delays have also been noted by trade credit insurer Atradius. It’s latest Payment Practices Barometer, published in November 2021, noted findings that were just as shocking as those found by the FSB. In detail, 44% of the total value to business-to-business sales in the UK were overdue while a further 8% had been written off as entirely uncollectable. In other words, just 48% of sales were paid on time.

But there’s more to concern businesses in 2022 according to Atradius. Its research says that 39% of firms reckon that it’ll take longer to collect payments this year.

All of this means that to manage cash as a direct result of late payments, half of the businesses surveyed have had to increase the time, cost and resources invested in chasing overdue invoices, and 41% have strengthened their credit control procedures. 28% have sought new financing, while 26% have had to delay paying their own suppliers.

And to manage credit risk, 61% say they have adjusted credit terms for customers while 53% have offered discounts to incentivise early payment.

So, what can be done? Certainly, governments of all persuasions have sought to improve this situation. There’s the Late Payment of Commercial Debts (Interest) Act 1998 which gave creditors the right to charge interest on late payments, and the 2016 Enterprise Act which brought in a commitment for public bodies to pay within 30 days of accepting invoices. And the Office of Small Business Commissioner (OSBC) came along in December 2017 with a private sector goal of having invoices settled within 60 days from the receipt of invoice (within 30 days for SMEs with fewer than fifty employees). The OSBC can help with disputes against large businesses, but its powers are limited.

All of this leaves creditor firms with just three realistic options.

They could appoint a third-party to help collect what’s owed – but this, some feel, could jeopardise ongoing business relationships. The reality, however, is that a professional debt collection agency is seen by many as good practice and can be the spur to a third-party to engage and pay.

Alternatively, they could simply escalate the matter to the courts. But this would undoubtedly end a commercial relationship.

Or the creditor could write off the debt.

One thing is certain, at a time when so many companies are facing difficulties recouping what they are owed, it is not a good idea to wait when an invoice is overdue; waiting could result in the recovery of absolutely nothing.

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