Since April 2017, companies with a turnover of £36 million or more have had to report their payment practices to the government and the latest list of the ‘worst offenders’ makes for disheartening reading. Just 5% paid their invoices within 30 days and more than a dozen companies took over 100 days to settle the bill.
However, the positive side of this news is that it gives negative publicity to late payers, shows SMEs who to avoid, and reminds everyone just how damaging late payment practices can be. It also reminds us that there’s still more work to be done to support SMEs operating in the UK.
Increasing the pressure
Recent government proposals seek to empower trade bodies like the Federation of Small Businesses (FSB) to flag best and worst payment practices. It's a welcome addition to existing rules, which require larger companies to report on invoice payment times, but I don’t think it goes far enough. Nor do most UK SMEs.
A recent SME survey by Dun & Bradstreet found that 62% want stronger legislation to tackle the issue, and 63% say that late payers should be fined. Similarly, the FSB has argued that the government should be penalising those businesses that don’t meet 30-day payment requirements, and that there should be systems in place to ensure interest is charged when businesses pay late.
Leading by example
While I agree that we need more support for SMEs struggling with cash flow problems, I’m also aware that these things move slowly. That means SMEs must continue to up the pressure, not only on the government but on late payers themselves. By empowering businesses to combat bad payment practices, we can all send a message to the business community. But what does this mean in practice?
Researching company payment practices and doing due diligence on new clients is a good way to avoid late payers. You can also ensure your contracts and invoices contain clauses allowing you to charge interest on late payments, and pursue debtors using Enforcement Agents where necessary. Using automated invoicing services, being smart about how payments are collected by offering discounts to prompt payers, or using next-gen payment systems can help make sure payments are more timely. If there are problem clients, it is important to report them to the Small Business Commissioner in the worst instances.
Making these changes isn’t simply about finding practical solutions to an ongoing problem. It’s also about changing the way late payments are viewed in the business world. For too long late payment has been accepted as ‘one of those things’, as something to be accounted for in your budget. But it’s not acceptable for clients to habitually pay their invoices late. We need to send that message loud and clear to the government, to the business world and to our clients. Only then will things change.
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