BNET’s Crash Course on getting customer’s to pay up contains some invaluable advice — and it’s realistic to suggest that you hold off on litigation until all else fails. But what about the UK right to interest on late payment — do businesses make use of it?
Evidently not — or to no effect — according to a couple of recent reports on delinquent debt’s effect on small businesses.
BACS Payment Schemes research claims that late payments are up 40 per cent on last year — UK small and medium-sized enterprises (SMEs) are collectively owed £25.9bn, with 57 per cent owed money from overdue invoices. Debtors are holding back payments for an average of 41.5 days — making even quarter-to-quarter targeting almost impossible.
The BACS report found the average owed to a Midlands firm is £69,000 and 65 per cent of SMEs in manufacturing suffer late payment problems. Yet small businesses are reticent about charging interest or even altering payment terms to reflect the tougher market — leaving 70 per cent open to cashflow problems, according to another report by Lloyds TSB Commercial.
There are valuable tips on alternative ways of improving cashflow among SMEs — spreading your risk, factoring or invoice discounting, credit insurance, running a credit check on all new suppliers.
But if BACS’s managing director, Michael Chambers, is correct and SMEs are disappearing at a rate of 86 a day, the right to interest is still their best weapon.
It’s just possible that, longer term, the proliferation of networking over the Web will give smaller businesses the chance to ‘name and shame’ the worst offenders.
The Forum of Private Business already offers a ‘who not to work with’ guide, with Hall of Shame residents including drinks business Diageo (voted as Britain’s most admired company by a 2008 poll). It extended its payment terms to 60 days as part of a cost-cutting exercise, giving its small business suppliers little notice of the change.
Maybe in future, the reputational damage this could cause late payers will become a valuable deterrent. But for now, there’s just the right to interest — and what good’s that if even the European Commission can’t pay its bills on time?
