Small Business Late Payments Continue
More than 80 per cent of small businesses are still paid late by their customers, waiting more than 30 days before they receive their fee, new research has found.
The survey of over 300 small firms by professional services firm RSM Tenon also found that one in six business owners have waited for more than 60 days to be paid in the last 12 months.
Legally, if businesses don’t agree a credit period with their customers, the law sets a default period of 30 days. After this period businesses can charge late payment interest.
“Instances of late payment are increasing.”
said Forum of Private Business (FPB) media manager, Phil McCabe.
“Currently, something like £24 billion in invoice payment is outstanding just to small firms.”
McCabe added that the main culprits are often large companies who impose longer payment times on small businesses with very little negotiation.
“Large companies often see squeezing their suppliers as an artificial way of creating a line of credit, but it’s very much at the expense of small firms. The consequence of late payment is that firms are financially squeezed to the point where many of them go out of business.”
While small businesses can take various steps to reclaim payment under the Late Payment of Commercial Debts (Interest) 1998 (revised in 2002), McCabe said that they are frequently too intimidated to do so in case they lose the customer.
He recommended that small businesses do thorough credit checks on any potential customers:
“It’s important to be proactive. Look at trade credit insurance and whether you are insured against late payment. Minimise the impact before it happens.”
Owner of small business Output Magazine, James Matthews–Paul said:
“You have to learn to expect late payments and factor them into your cashflow.”
“Financial services agencies are another problem, because it removes a layer of accountability from the person you usually deal with. The most intimidating thing is that often they’re clients you have ongoing work with. We tend to provide a monthly service — if we’re on month two of a six month agreement then by pursuing the money that’s owed to us we’re potentially jeopardising the agreement that we have with them.”
Matthews–Paul said that small-business owners should try to balance their financial interests with keeping late–paying customers happy.
“Don’t annoy them so much they won’t use your service again, but make sure that you do actually get the money when they say it’s coming in.”