A recent study by Bacs, the payment processor, has uncovered some interesting, if not perturbing, statistics on the late payment of invoices. Consider the following:
- The average small company is owed some £32,000;
- The additional costs incurred by small companies resulting from late payments are in the region of £677 per month;
- Companies employing fewer than 250 people are owed £32.4 billion;
- Larger companies are owed £9.1 billion;
- Overall, some 59% of businesses are affected by the issue.
If that wasn’t enough to give you pause, the overall effect of unpaid invoices means that a lot of directors, partners and sole traders are forced to take a pay cut as a result of the level of unpaid invoices. Bacs calculate that 1 in 5 directors suffer a reduction in their remuneration in order to cover the shortfall in cashflow.
The reduction in cashflow can often force a business into relying on overdrafts, or invoice financing arrangements, neither of which are cheap.
There is also the question of whether the increasing burden of unpaid invoices is having a wider effect on the economy, restricting the funding required to grow the business.
Whatever the reasons, late invoice payment have a direct effect on a business and its ability to pay its staff and suppliers. More often, we are seeing smaller business delaying payments to their suppliers because they have their own issues with outstanding payments. A vicious circle.
In the medium term, the government is mooting changes to its Prompt Payment Code which came as a result of a number of high profile companies extending their supplier payment terms. Such changes might include forcing companies with more than 250 employees to publish details of how long they take to pay their suppliers.
All well and good, but how are smaller businesses going to deal with the immediate problems of late payments? Efficient credit controls are the starting point. The longer you leave an unpaid invoice, the easier it is for that debtor to ignore. Perhaps that debtor is ignoring you because it is receiving more pressure from another creditor?
However, there comes a time when you need to take firm, positive, steps to recover money that is owed to you. The Kitsons Debt Recovery team wiill make your debt our problem and use tried and tested methods to recover sums owed as quickly as possible.
At the end of the day, why should you as a hard working business owner take the hit due to recalcitrant debtors?
For an informal no obligations chat to see how we might be able to help please contact Andrew Pay.