Business survival is all about cash flow. Businesses can keep going as long as they can pay their bills. It has been two months since the Government’s reforms to the Prompt Payment Code came into force. Here, Business Development Manager, Colm Devine, shares his insights into the issues around late payment and what small businesses can do today to safeguard their cash flow.
Britain’s small-and-medium sized enterprises (SMEs) are owed in total an estimated £44.6 billion in late payments, with one in five business owners owed over £25,000. That’s around 1.6% of UK GDP.
With only one-third of PLC’s paying invoices within 30 days, and conditions showing no signs of improving, cash flow is becoming a real problem for UK SMEs.
The average business is owed £38k; at £50k one in four businesses fail. Around one-third of UK businesses have experienced late payment of 90 days or more. Added to this, valuable time that could be spent planning strategy, is spent chasing invoices.
This isn’t to direct all the blame at the larger companies: they’re often under pressure to define and control their credit terms in line with their business objectives, which leads to the need for extended credit terms
But they have a lot of buying power and they use it. Therefore, the finance industry must be creative in finding solutions and leveraging technology for smaller businesses to alleviate cash-flow issues. It must then get the big companies on board with these solutions.
There is a lot that SMEs can do to minimise the risk around late payment before situations arise. Establishing processes such as the following can help:
When a bad situation with a client has already emerged, SMEs do have recourse to the law. The Late Payment of Commercial Debts (Interest) Act, which came into force in 1998 (amended by the Late Payment of Commercial Debts Regulations 2013), provides SMEs with the ability to claim compensation for qualifying late payments from other businesses. It also allows them to demand interest on late payments. Taking legal advice to enforce this at the appropriate stage is, therefore, this is also an option.