Businesses still struggling with late payment culture
Companies struggling with the effects of late payment are failing to take advantage of formal procedures and are putting their business at risk, a new business report has warned.
The report from Graydon UK and the Forum of Private Business (FPB) found that less than half (44 per cent) of businesses questioned used credit control procedures to minimise late payment practices, despite acknowledging there were pro-active steps which could be taken to avoid significant business difficulties.
Over half (51 per cent) of businesses cited that late payment of trade invoices was a problem, with 23 per cent saying it had become a ‘serious’ problem, and one in six admitting they have almost been put out of business as a result.
The research also highlights the ‘domino effect’ of late payment through the supply chain, with 56 per cent of respondents who did not receive payment on time saying they were unable to pay their own suppliers on time as a result. Just under half of those surveyed said that late payment had eroded profits and undermined their ability to invest in growth through innovation.
According to the FPB, businesses are failing to utilise credit control procedures, saying that those who do so are much less likely to suffer as a result. This may include offering prompt payment incentives and charging interest to late payers. Those who implemented safe-guards such as reserve funds to offset late payments (43 per cent) and cash flow software (43 per cent) found they were much less likely to suffer.
Phil Orford, chief executive of the FPB, said: “The research shows just how damaging the late payment of invoices is for small firms across every sector. It decimates cash flow, kills growth and innovation and ultimately forces businesses to the wall.”
The FPB said that communication and support for business owners on how to minimise late payment was key. It also said that large corporations needed to commit to paying suppliers on time, so that capital could move freely down the supply chain.
The report’s findings were discussed this week at a House of Commons summit which was attended by Graydon UK, the FPB, business MPs and the Association of Chartered Accountants (ACCA).
The Government has been criticised over its late payment legislation policy which sceptics believe has failed to work.
Graydon spokesman, Gordon Skaljak, said: “The business community and the Government must join forces to protect companies by stamping out the UK’s late payment culture.”