I watched, with great interest, the Secretary of State for Business and Trade, Jonathan Reynolds, on the BBC News this morning (19th September), stating the government’s determination to stamp out late payments: especially for small businesses. Taking points from the government website and statistics from the Department of Business and Trade, I read some statistics that late and withheld payments starve small businesses of £40 billion of cash each year, impacting their ability to invest in growth and, in some cases, causing them to cease trading. It is a continual challenge for SMEs, either dealing with late payments or resisting even large multi-billion international companies, trying to impose extended payment terms of 120 days.
Businesses’ cash flow plays a significant role in late and long payment times. When thinking about the drivers of late payment, surveyed businesses most commonly cited cash flow issues outside of their control. These included their business customers themselves being paid late (40%). This goes some way to highlight that late payment can have trickle-down effects through supply chains, where late payment higher up the chain leads to more late payment elsewhere; and those late payments can signal financial distress among businesses as cash flow becomes strained in tighter economic conditions.
Administrative errors are prevalent too, indeed 24% of surveyed businesses attributed late payments they received from their business customers to administrative errors, including failing to log invoices or other invoicing errors.
Large businesses are more likely to report administrative errors driving late payments (36%).
The clear message here is ensuring your invoicing is done accurately, clearly, and displays the required customer information, especially purchase order details, and on time.
Some businesses pay late on purpose, even when the have available cash. 18% of surveyed businesses suggested that late payments are driven by their business customers’ purposefully paying late, treating it as a form of ‘free finance’. This was more common for businesses in the goods sector (30%) and micro businesses (24%), and suggests that these businesses could be more likely to experience poor payment behaviour across their customers.
So, while I’m sure we all applaud the Secretary of State’s intentions announcing a new Fair Payment Code (replacing the old Prompt Payment Code) I feel it needs an implementation date and something more legislative. If you’d like to read the government’s stated policy, it’s here:
Until next time, Mike