Why 2020 looks set to be a tough year for late payment
2019 was a difficult year for businesses with regards to late payment, and the outlook for this year isn’t looking any rosier. Here we look at why late payment will continue to be an issue in the year ahead and what you can do about it.
In 2019, UK SME late payment debt rose to a staggering £23.4 billion, up £10.4 billion on the £13 billion owed in 2018, according to figures released by Pay.UK.
As well as this, the number of businesses experiencing overdue payments hit 54% – the highest level since 2015.
And, despite many government attempts to tackle the issue, many businesses expect late payment to continue to get worse in 2020.
According to research from trade credit insurer Atradius, a third of UK businesses (32%) expect customers’ payment practices to worsen. More than half (53%) expect a significant increase in late payments.
But they’re not the only ones feeling pessimistic about the year ahead.
If a succession of recent research and reports are to be believed, the UK could be about to witness a spike in corporate insolvencies.
Euler Hermes, the global trade credit insurer, is predicting an 8% rise in corporate insolvencies this year.
As we have seen in previous years, with the likes of Thomas Cook and Carillion, when a large company fails it has a devastating impact on the rest of the supply chain. This adds to the vicious late payment cycle.
What’s to blame?
The gloomy outlook on payment trends and rise in corporate insolvencies could be attributed to Brexit-related uncertainty and the current global economic situation.
The IMF has warned that the world is in a “synchronised slowdown” and in October cut its forecast for global growth.
Plus, whilst the UK is due to leave the EU on 31st January after Prime Minister Boris Johnson’s Brexit deal was backed by MPs, this is only the next step in the Brexit process.
A lot remains uncertain about our future relationship.
Following its departure, the UK will enter a transition period until 31 December 2020 where the two sides will try to negotiate a trade deal and other aspects of their new relationship.
This uncertainty will continue to be a concern for businesses until a deal is agreed and we see how it will work.
So, how can you protect your business?
Unfortunately, whilst the government has tried various tactics to improve late payment culture, the onus is still on businesses to protect themselves from the perils of late and non-payment. There are numerous ways businesses can do this including:
1. Improve credit control
An efficient and effective credit control strategy is key to protecting your business from late and non-payment. First, it’s vital that you know who you are offering credit to by using tools such as credit reports and account opening forms. Then, the key is to always remain on top of your credit management so that you can spot warning signs early and take action before late payment impacts your cash flow.
For more credit control tips read 101 ways to improve your credit management.
2. Protect cash flow
Credit insurance can help to mitigate the risks of trading on credit terms by offering protection against late payments and bad debt. As well as this, funding options are available which reduce the cash flow impact of trading on credit terms. Invoice finance, for example, bridges the cash flow gap by releasing up to 90% of an invoice’s value within 24 hours of its issue.
To discover the best options for your cash flow needs visit our sister company, Hilton-Baird Financial Solutions, and take a look at this blog for more tips on how to protect your cash flow.
3. Take action
When it comes to late payment speed is key to getting your money. Research shows that the longer an invoice remains unpaid the less likely it is to be paid. Therefore, it’s vital that you monitor all your invoices and take action as soon as possible. If you’re struggling to collect the payment internally you could benefit from partnering with a debt collection agency, who’ll bring expertise to the process and give you back the time to focus on other invoices.
This post considers when you should use a debt collection agency.
If your business is struggling with late payment and you’d like to discuss your debt collection requirements, please contact our team on 0800 9774848 or get a quote to see how much we would charge for successfully collecting your overdue payments.