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28 May 2015

Can conciliation help end our late payment culture?

Posted on May 28, 2015 by

javidIt may not have been the biggest headline-grabber in the Queen’s Speech this week, but the proposal for a new small business conciliation service, as part of the Enterprise Bill, will have been positively received by tens of thousands of UK businesses – particularly SMEs.

The conciliation service will intervene in disputes between small and large businesses, especially over late payment practices.

As any SME knows, reaching agreement with a customer to get overdue invoices paid is never easy. Very few businesses will risk their customer relationship by going in too hard, too early. The conciliation service could be a way forward for many.

The problem is that late payment is endemic in the UK, so the service could easily be swamped. One recent survey said almost one in six invoices were paid late in the last six months, and some big businesses insist on 60, 90 or even 120-day credit terms – four times higher than the 30 days covered by current late payment legislation.

Research by commercial debt recovery firm Lovetts showed that businesses are reluctant to act against late-paying customers, with firms waiting on average for 103 days from the invoice date before attempting debt recovery. That means it’s probably already more than two months overdue.

In another survey, insolvency body R3 found that late payment is a primary or major factor in one-in-five corporate insolvencies, caused by the pressures on cashflow.

Politicians will stand up and complain about the practice, and business campaigns (such as the Prompt Payment Code) will highlight the issues and call for ‘fair play’, but those businesses responsible for holding back on payments know how costly and time-consuming it is to chase down debts, so they continue to get away with it.

The Federation of Small Businesses reckons the amount owed in late payments now stands at £41.5bn, and it has called for the Government to help address the UK’s “poor payment culture”.

The PRCA, which represents more than 18,000 businesses and individuals in the PR industry, recently launched a campaign to call on organisations to pay their agencies within 30 days, and put a stop to the practice of unethical payment terms.

PRCA research revealed that a quarter of PR agencies reported that clients generally take over 30 days to pay them. One agency said they’ve had to wait 120 days to receive a payment.

As Francis Ingham, the PRCA’s Director General, said: “Many clients treat payment terms as a way of shoring up their own cash flow. It is unethical to exploit PR agencies in this way, many of which are SMEs.”

We certainly support the PRCA’s stance. As both a PR agency and an SME, it’s important to us that we’re paid on time. Fortunately, most of our clients do pay us on time. But it’s the odd one that doesn’t that can cause damage if you’re not careful.

We pay our own suppliers within 30 days, which can mean we’re subsidising any clients who pay late. And if you know anything about cashflow, you’ll understand why that’s an issue for a business.

And this isn’t just a problem for small businesses. I’ve been in large organisations that have had the same issues – sometimes worse, because customers think their bigger suppliers can afford to wait a bit longer.

So I’ve heard all the excuses over the years, from “We haven’t received the invoice” and “It’s still awaiting sign-off”, to “It should be on our next payment run” and the ubiquitous “A cheque’s in the post”. Yes, we do have one client that still insists on paying by cheque!

Regardless of the industry, no business wants to lose its customers, but if they think what you provide is of value, they should be prepared to pay for it – and on time. If they don’t, and you value what you do, you should be prepared to stand up for your rights.

The regulations covering late payment won’t necessarily get your invoice paid on time, but they will at least allow you to charge compensation and late payment interest. You might not want to do that for the odd errant customer, but you should certainly consider it for the serial offenders.

If that doesn’t work, there’s always the nuclear option. Just be aware that once you press the big red button, there’s no going back. But if it’s got that far, you probably wouldn’t want to anyway.

Perhaps the Enterprise Bill will make a difference, but let’s not rely on it. Besides, we don’t need politicians to come up with the answer.

We all have customers, and we all have suppliers, so creating a level – and fair – playing field is entirely in our hands.

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