Following the Carillion scandal, the FSB has warned big businesses that they must do more to end late payments. But what can SMEs struggling with the impact of overdue invoices do today to alleviate their situation today? We take a look at how you can combat poor payment terms.
Late payments, poor payment practice and supply chain bullying. These are all things that are happening in the UK right now that the Federation of Small Businesses (FSB) recently warned are at risk of damaging the economy. And the culprit? Big business.
The problem with payments
Carillion’s demise earlier this year shone a light on some of the obstacles facing suppliers, when it comes to maintaining a healthy working capital. And it’s hoped by many that some valuable lessons have been learnt. In an open letter, Mike Cherry – the FSB’s National Chairman – urged big companies to work with small businesses in order to create and support a new payments culture in the UK.
But is it too little, too late? Research carried out by the FSB reveals that 84% of small firms within supply chains have been paid late, and 33% reported that at least one in four payments arrive later than agreed while 37% state that agreed payment terms have increased over the past two years and that this has had an adverse effect on Cashflow.
The broader impact is clear: the UK economy is potentially missing out on £2.5 billion due to SMEs not being paid on time. And with larger businesses increasingly imposing 90-day payment terms onto suppliers and sub-contractors, some businesses with an annual turnover of less than £1m are having to wait on average of 72 days for an invoice to be paid.
How to combat late payments
A recent report into the collapse of Carillion by two parliamentary select committees exposed substantial failures at the company, which included the squeezing of its suppliers and the ineffectiveness of the Prompt Payment Code, and has led the FSB to request big businesses to lead by example and review their best practice when it comes to settling invoices promptly.
Overall, the report calls for a shift in culture to avoid the kind of corporate recklessness that can do considerable damage to SMEs.
We have previously looked at what SMEs can do to ensure they are paid on time, for example:
Enable digital payments
Look for accountancy software that enables recipients to pay immediately via a ‘pay now’ button that’s embedded in the invoice.
Set up automatic reminders
Use an online task tool to set reminders so that you can chase payment a few days before it’s due and keep chasing until it’s paid.
Keep accounting teams on your side
Make the effort to nurture and maintain great working relationships with anyone involved in the accounting and finance side of the businesses that you are invoicing on a regular basis.
Help is on hand
When Cashflow is tight, Global Asset Finance Limited and Partners is an invoice finance provider that can help, thanks to its reliable, fast and flexible facility. Platform allows you to pick and choose the invoices you want funded, as and when you need, selective invoice finance is an attractive finance facility for any business.
It’s also a quick option, with a straightforward process. So, depending on your business needs at any given time, you have the flexibility to adjust your Cashflow position by selling a single invoice or your complete sales ledger or just a few at a time.
You control what invoices you want funding, and improves your business Cashflow.