ONSIDE / COMMENT
CAN’T PAY, WON’T PAY:
HOW UNPAID INVOICES DAMAGE BUSINESSES
A
damaging culture of failing to pay invoices on time
flourishes across all sectors and at all levels in the
supply chain. Often it’s the big players that put
the squeeze on SME suppliers – leaving them exposed to
potential business failure and job losses.
In the absence of a law compelling companies to
pay on time, there are steps that SMEs can take to
help manage late payment:
The new Conservative majority government has unveiled
an Enterprise Bill, which at first glance seems to offer some
comfort to SMEs on tackling poor payment practices. The bill
promises to build on existing measures, including a voluntary
code of conduct and a small business conciliation service, to
help ensure that these companies are paid on time.
However, I’m sceptical that a voluntary initiative will ever
force the hand of those corporates who know that they have
the financial clout to withhold payments – in some cases
insisting on terms of up to 90 – and even 120 days.
Research from the Institute of Directors (IOD) at the end of
2014 revealed the scale of the problem.
1
Understand the implications of what being paid late means
for your business. Never has the phrase ‘cash is king’ been
more important, because if your customers aren’t meeting
your stated terms then you will need cash reserves to pay your
own suppliers and your staff. Cash flow problems are the
reason why some SMEs go under – even if they appear to have
a healthy order book.
A staggering 66 per cent of the IOD’s SME members who
were surveyed reported issues with late payment of invoices
while 1 in 8 said their customers had changed payment
terms and 28 per cent revealed that they had been forced to
delay payment to their own suppliers. Additional findings
highlighted that 13 per cent were prevented from growing
their businesses as planned and 10 per cent were forced to
reorganise their financing arrangements.
Although 1,700 companies including Admiral Insurance,
Vodafone and Tesco, have signed up to the voluntary
Prompt Payment Code, the IOD survey shows that failure
to pay bills on time is still widespread.
Many SMEs, who are understandably frightened of losing
their big customers, will not challenge poor payment
practices – and some may even agree to unrealistic terms.
32
2
Set your payment terms out clearly and consider including
a penalty clause. Some of the businesses we invest in have
been on the receiving end of late payment practice and we
encourage management teams to be firm and take a fair line
with customers. If they are 30 days, chase up payment on
the deadline and have a clear process to do so. Never be
embarrassed about chasing debt – even from your largest
customers. Communication is critical – stay in touch regularly
with your clients and most customers will work with you, in
my experience.