Is late payment culture getting worse?

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    Melissa Tredinnick

    Melissa Tredinnick UKBF Regular Staff Member

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    Do your customers stump up the cash on time, every time? After several false dawns on improvements to the UK’s poor payments culture, the time may be right to take matters into your own hands. 

    Last year, we published an article on UKBF about surviving Britain’s late payment culture. Since then, the problem is far from resolved. 

    In fact, it seems to be getting worse for some businesses, with research from the Institute of Chartered Accountants in England and Wales showing around a quarter of SMEs consider late payments a bigger challenge now than they did a year ago.

    The same view was expressed in separate Government research published in June this year, which showed 97% of businesses had experienced late payments, and many felt the issue had become worse in the last three years.

    That’s despite several relatively recent initiatives to improve payment culture, including a requirement for large companies to report on their payment practices, the creation of the small business commissioner role, and an initiative to prevent late-paying companies from winning government contracts.

    At the moment, the Government is consulting on further measures, which could make it possible for the small business commissioner to prosecute and fine companies that pay late. 

    But with political change and Brexit taking the spotlight at the moment, there’s a risk that problems like late payments could be pushed to the back of the queue.

    Fees and discounts

    Businesses have the right to charge interest on late payments from other businesses, of up to 8% plus the Bank of England base rate. 

    They can also claim debt recovery costs on late payments, of £40 for debt of up to £999.99, £70 between £1,000 and £9,999.99, and £100 for debts of £10,000 or more.

    However, only 11% of businesses that responded to the Government’s research had exercised their right to take either of these steps.

    Some businesses might not be aware they have the right to do this – but for others, debt recovery might not be the most appropriate route.

    In one recent thread, UKBF free member Acejlari asked for advice on plans to set up a 25% penalty for late payments. 

    Aside from the question of whether such a fee could be legally enforceable, some UKBF members warned that it could end up alienating potential customers, and costing the business more than it saved.

    Mr D pointed out: “Would that benefit your competitors? I’ve never come across any supplier doing it, but if I did it would suggest to me to use someone with better terms. Can you afford to lose customers even if they have no intention of paying late?”

    An alternative suggestion of offering a discount for early payment instead had its own problems. “It’s just not worth the problems with people arguing they still want the discount regardless of when they pay,” Chris Ashdown said. “And it makes you look like you could have charged a lower price in the first place.”

    Firm but fair

    While few businesses want to upset or anger their clients, you still need to get paid – ideally on time.

    UKBF user Sniper74 found that while her lenient payment terms seemed like a competitive advantage, they were actually leading to long delays for payment.

    “We have always accepted payment either on delivery or by bank transfer and I think that's why a lot of schools tend to go with us, as we don't ask for payment with the order,” she said.

    “The issue is that by the time the secretary sends it to their finance department and they process it, it can be four to six weeks before we receive payment.”

    A common tactic is to start with gentle reminders before sending more serious warnings, and eventually escalating to legal action if it’s absolutely necessary. 

    It’s usually best to reach out to the customer in a bid to strike a mutual agreement before taking things further. Hopefully then you both will avoid the hassle and cost of court proceedings, so give the consumer as much opportunity as possible to pay what they owe without it going any further.

    Besides, it’s usually easier to resolve disputes by talking them through.

    As Mark T Jones noted in a similar thread,“the strongest collection method by far is real-life talking – preferably face-to-face”.

    If the straight-up approach fails, tighten up your terms and conditions according to your business’s situation, such as stopping new orders for clients who haven’t paid yet, preventing certain orders from being cancelled, or requiring payment or a deposit before the order is fulfilled.

    Whichever route you choose to go down, it seems unlikely that the problem of late payments is going to disappear anytime soon. 

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  2. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

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    I’m not sure there is any evidence of a worsening problem.

    I recall in the late 80s, when my clients were mostly in construction, debtor days of 90 days were pretty normal - until the recession struck - then it really did get worse.

    I suspect one problem we are now seeing is that of ‘not quite’ businesses, who freely supply goods and services on credit but have no credit control policy whatsoever.
     
    Last edited by a moderator: Aug 19, 2019 at 11:27 AM
    Posted: Aug 15, 2019 at 7:19 AM By: Mark T Jones Member since: Nov 4, 2015
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  3. Mark P Trotter

    Mark P Trotter UKBF Newcomer Free Member

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    My clients are asking for new strategies on late payment because the main issue for them is zero tolerance of late payment in their supply chain.

    The culture in the 80's was a clever use of credit and invoice terms. Very few companies enforce a late payment penalty as they are frightened of losing business.

    First principle of buying and selling, if the buyer doesn't have the money they don't get the product. If I walked into my local supermarket and suggested that I was taking all these goods with the idea that I will pay in 90 days - the law would describe it as shoplifting.

    So if a client finds a buyer has misrepresented their ability to pay the first stop is small claims court.

    The key to trade is the transaction. No payment no transaction, recover the goods or the money. Don't negotiate, just do it.
     
    Last edited by a moderator: Aug 19, 2019 at 11:27 AM
    Posted: Aug 16, 2019 at 11:16 AM By: Mark P Trotter Member since: Mar 29, 2018
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  4. Millerd

    Millerd UKBF Newcomer Free Member

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    With these conditions, it's an ideal time to do a customer classifying exercise - categorise them based on factors like value and margin:
    • good (no hassle, good margin, good volume)
    • average (not so good not so bad)
    • and then those that should be dumped (poor margins, low volumes and lots of hassles).
    It's often surprising to see the distribution and how the results improve after doing a cleanout.
     
    Last edited by a moderator: Aug 19, 2019 at 11:28 AM
    Posted: Aug 16, 2019 at 4:58 PM By: Millerd Member since: Feb 24, 2019
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