Are big businesses still abusing small suppliers?
Over the past couple of years in particular, the payment habits of the UK’s biggest businesses have come under increased scrutiny as the late payment picture has worsened.
Inflicting their own terms and paying smaller suppliers late are just two of the criticisms levelled at large firms, prompting the introduction of a number of measures to try to reduce these practices.
But fresh findings from a Hitachi Capital Business Finance survey have shown again how vulnerable the UK’s smallest companies remain to late payment.
According to their research, more than three in five small businesses (63%) are dealing with late payment issues – and the smallest businesses (those with an annual turnover of less than £1 million) are those most at risk of serious non-payment.
They were the most likely to see their invoices paid more than a month late (26%), and the most likely to suffer from bad debt risks from non-payment (25%).
In total, one in five of the smallest businesses said they were living with non-payment for 20% of their invoices, with just three in ten reporting all their invoices had been paid on time.
Whilst there could be a number of additional factors behind these shocking statistics, it’s hard to deny that big businesses are part of the problem.
The introduction of new tougher payment reporting laws, which require big businesses to publish their payment terms in a bid to improve supply chain transparency and reduce late payments, have done little other than confirm that many large companies still pay poorly.
According to the reports, which are available online, on average 32% of invoices are not paid within agreed terms.
This frustrating evidence proves that, despite attempts to curb the problem, many big businesses are still using their name and size to take advantage of small suppliers.
What else could be behind the figures?
The research also found that younger bosses were more likely to be suffering from late payment.
Seventy per cent of small business decision makers under the age of 35 reported late payment issues with some of their invoices, compared to 61% of those aged 55 or over.
Without a persistent and effective credit control system in place it becomes much easier for customers to delay payment beyond agreed terms (or not pay at all), and perhaps it is those businesses who are being affected the most.
From calling to check receipt of the invoice to contacting customers just before due date, there are a number of things businesses should be doing as routine to reduce the risks of late payment. Yet many lack the time and resource that’s required to perform even the basic credit control steps.
There are, however, a few simple ways that small companies can protect themselves from late payment without tying up too much time.
Here are just three, but this blog features eight credit control tasks that take less than five minutes:
1. Set out payment terms before committing to orders
Your terms and conditions are a great tool for safeguarding your business. By setting these at the start of your business relationship you ensure that both parties are on the same page and know what is expected. Make sure to also include details of your procedure in the event of late payment. This can include charging interest, outsourcing the debt or taking legal action. Often this is enough to show that you take late payment seriously and encourage the customer to make payment on time.
2. Credit check your customers
It doesn’t matter how big your customer is you should always perform a credit check. You can even check online resources such as the payment reports to analyse their payment performance. If they have a history of poor payment it’s unlikely that they’ll pay on time now. Could your cash flow survive if they don’t?
3. Chase for payment when it is due
Whilst it can be daunting to chase a large business for payment it’s not something that you can put off. Always call your customer ahead of the payment date to remind them of the invoice and confirm their intentions to pay. If the invoice does go overdue then call them immediately to check the status of the payment. There is a chance that they may have forgotten or there could be an issue that needs resolving – something that can only happen if you communicate with them directly.
If your business is struggling with late payment, as a leading debt collection agency we could help. Contact us on 0800 9774848 or get a quote to see how much we would charge for successfully recovering your unpaid invoices.