Late Payment Behaviour - the Widespread Problem

BROMSGROVE, U.K. - Feb. 26, 2015 - PRLog -- In July 2014, the Independent ran an article on late payments which were crippling smaller UK businesses. It cited that 6 out of 10 small businesses (which make up the vast majority of UK companies) had overdue payments owing to them, with the average balance of just over £38,000 outstanding. This adds up to a staggering £39.4bn nationwide. Further, three quarters of the surveyed companies had confirmed that many of these amounts were typically overdue by at least a month.

The blame, it appears, was mainly directed at larger companies whose outstanding figures came to £6.7bn. The suggested solution was to grant the Prompt Payments Code body legal power and bar non-complying organisations from public sector tendering – a well-meaning, if not complex solution.

It may be better to understand how  late payment has become almost expected of many businesses. A Mastercard survey of businesses in 2014 determined that 74% of respondents thought that late payments are simply part and parcel of being in business and will always happen. It has been labelled as a ‘late payment culture’.

Research carried out by the Forum of Private Business saw them sitting down with 500 UK businesses to consider the root cause of the problem. They discovered that 56% of respondents have caused a domino effect by paying their suppliers late, because of a late payment.

Research undertaken by Conclusr in early 2014 asked a variety of domestic businesses in the UK what most commonly caused late payments – and the answer wasn’t surprising. ‘Insufficient availability of funds’ was cited by 33.5%. The vicious cycle of late payment will not only be affecting smaller businesses, but their larger counterparts too.

The solution of penalising late payers via the Code, although well-meaning, doesn’t educate businesses on how to avoid falling into the trap. Stringent credit control procedures should be implemented throughout all businesses – implementing bank references for new customers, purchasing credit reports if possible, requesting secure forms of payment and taking the time to discuss payment terms and answer any questions will reduce the chance of a strained relationship. This could motivate sincere businesses to operate efficiently to benefit others and themselves, making their marketplace fairer.

Although the Prompt Payment Code has commendable motives, the bestowing of legal power and penalisation of non-compliant members would inevitably still result in some participants – however unintentionally – slipping through the net of delayed or defaulted payment.

Controlaccount are pleased to offer services to assist companies with non-payers who, no matter what powers the Prompt Payment Code has, still fail to pay. With a range of tools designed to help manage credit control effectively, Controlaccount look to provide further services aimed at reducing days sales outstanding (DSO) to avoid falling into the hazardous pit of the late payment cycle.