August 16, 2019 Late payments impact confidence
What are your payment terms? Perhaps more importantly how many of your customers pay on time? If a report by the ICAEW is anything to go by then the answer to the second question is ‘not enough of them.’ And it seems to be a growing trend. So much so that 20% of businesses are reporting that the problem of late payments is worse than a year ago. And when it comes to SMEs that percentage rises to 24%.
As the ICAEW Business Confidence Monitor indicates, late payments can lead to more than a simple cashflow problem. Payment uncertainty can have a knock on effect across the whole business. For example, if you don’t know when funds are coming in then you are far more likely to put a hold on recruitment or investment in plant. And if your cash flow position is uncertain, that can lead you to pay your suppliers late in turn, damaging confidence in your business and potentially leading to punitive contract terms.
Despite government initiatives the problem of late payments never seems to go away. One such initiative which took effect for financial years beginning on or after 6 April 2017 requires the UK’s largest companies and LLPs to report payment practices, policies and performance. A simple online search for these organisations can reveal information such as standard payment terms, average time taken to pay invoices and the percentage of invoices which were not settled within the agreed time period.
In addition to this basic information organisations also have to indicate whether they offer e-invoicing or supply chain finance, their dispute resolution process and whether the business has signed up to a code of conduct in respect of payment practices. Here the specific example given is the Prompt Payment Code, signatories to which have to commit to paying 95% of their invoices within 60 days.
In July eighteen businesses were named and suspended from the Government’s Prompt Payment register for failing to meet their payment obligations. Announcing the suspension CICM Chief Executive Philip King commented that they were “encouraged that of the 18 who have been suspended or removed today, all but one has already submitted action plans to achieve future compliance.”
Whilst an important first step, the payment terms reporting requirement only extends to larger organisations and membership of the prompt payment register is voluntary. And whilst businesses do have the option to charge interest and other fees for late payments, it is perhaps understandable if they opt not to do so; particularly if it could lead to a contract cancellation.
If late payment practices are to become a thing of the past then we need to see a culture change across business which sets late payment as an unacceptable business practice. In the meantime, further concerted action by the Government in tandem with business pressure could help to reduce the incidence of late payments, in the process helping to boost business confidence.