Why 2022 looks likely to bring more widespread late payment
2021 has been another difficult year for businesses with regards to late payment, and the outlook for next year unfortunately isn’t looking any rosier. Here we look at why late payment will continue to be an issue in 2022 and what you can do about it.
Late payment has always been an issue for businesses, but in many ways the coronavirus pandemic has exacerbated the problem.
According to the Institute of Directors (IoD), over a third of company directors said they had faced an increase in late payments during the pandemic, with almost one in ten reporting they had experienced significantly more problems than usual.
And, with many of the government support schemes now over or coming to an end, many business experts expect this to worsen.
During the pandemic many businesses used the range of emergency measures put in place by the Government to stay afloat.
Now that the various schemes are ending, many fragile companies are at a high risk of failure.
The Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) provided a lifeline for many businesses.
It is estimated that 18,900 companies were spared insolvency because of these initiatives.
But now, many businesses are having to make repayments before they are financially ready or able to do so.
Until recently, companies in financial distress because of the pandemic were protected from creditor action.
This scheme is now being phased out and, if a collection of recent reports are to be believed, we could be about to witness a spike in corporate insolvencies.
According to Euler Hermes, 37,000 businesses are expected to fail before 2023, with 17,100 expected to fold in 2021 and 20,540 in 2022.
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.
As well as this, the return of crown preference is likely to increase the casualties.
From December 2020, HMRC became a preferential creditor once again. So now, in any form of insolvency process, HMRC will rank ahead of other creditors, including trade suppliers.
This means that any unsecured creditors face the possibility of seeing reduced returns if a company becomes insolvent. This could also echo down the supply chain causing further casualties.
So, how can you protect your business?
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. This will ensure that you 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 outstanding 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. They will 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 what we would charge for successfully collecting your overdue payments.