SMEs success are being hampered by late payers, according to research from Graydon UK . Image: inspiresme
It’s not a new tale but late payments have been confirmed to be persistent problem for small- and medium-sized businesses in the UK, according to a new report.
More than three quarters of credit managers polled in a new Graydon UK
survey do not believe that the Government is doing enough to protect businesses from the burden of late payments and the potential damage it can do to their finances.
According to the research, during Q4 2011 more than half (51 percent) of businesses have experienced
How to manage your company's credit profile
Businesses must preserve their own credit scores
Businesses need to remember that it takes time to build a high credit score. One way business owners can do this is by being more transparent about their financials. Many small and medium sized businesses are labelled as a poor credit risk by a credit reference agency simply because not enough information is available for credit reference agencies to assess them upon.
This is worth bearing in mind for credit control and sales teams who need to be smart about how they assess potential clients as a bad credit rating does not necessarily mean you should turn away the business.
Offer incentives to customers
Small firms can also protect themselves from late payments by offering incentives to their customers to encourage them to pay their bills on time. While a discount needs to be carefully considered, the eventual cost savings will be beneficial to the business.
Diversify business supply chains
It is generally riskier to take on new customers than grow existing ones. Establishing a strong relationship with customers will be beneficial for businesses as it will allow them to spot the signs that a customer may be struggling. Stepping in to provide advice to your customers will strengthen your relationship and ensure that your customer is on a sound financial footing.
However, it is still crucial to build a broad range of clients from start-ups to larger businesses to ensure that the loss of one or more clients does not disproportionately impact your cash flow.
an increase in late payment trade invoices trend. This is most common in private sector businesses with a turnover of up to £50m per annum. While the Government has announced that the recent EU Late Payments Directive
, which standardises 30-day payment times, will be fast-tracked, it is uncertain whether this will be enough to reduce late payment and tackle this pressing issue.
Research also reveals that over the past year, 56 percent of businesses have seen suppliers unilaterally change their payment terms.
Meanwhile almost half of businesses (45 percent) predict that the impact of late payments could inhibit the ability to invest in people and services, it is important for businesses to put safeguards in place against late paying customers.
Gordon Skaljak, External Spokesperson, Graydon UK, commented: “With the Eurozone debt crisis already impacting the UK economy, it is concerning to see that two thirds of credit managers are worried about their cash flow and see late payments as a threat to their stability and growth over the next quarter and beyond. Graydon UK has united with like-minded organisations to urge the Government to address the prevalent UK culture of late payment to prevent the critical damage it could cause to businesses.
“Running regular credit checks is vital for businesses and it will mean that businesses will be alert to any changes in their customers’ circumstances that could lead to non-payment in the future. Expecting customers to pay their bills on time because they have done so in the past can leave businesses vulnerable and so undertaking regular credit checks on customers is essential for protecting your business from bad debts, and ultimately, insolvency.
It’s also important that businesses build up a strong credit rating in order to be able to secure alternative sources of funding quickly should their cash flow take a hit. Bank lending remains challenging and there have been cases when lenders have withdrawn funding to businesses experiencing short term difficulties, causing them to dive into insolvency.”