THERE'S an old adage in business – turnover is vanity, profit is sanity but cash is reality. I'd like to add failing to collect that cash is sheer stupidity.
But it appears that many of us – six in ten to be precise – are out of pocket to the tune of £25.9 billion in late payments we have failed to collect. Apparently it's because businesses are too scared of losing customers they are dependent upon, to
act quickly, firmly and to chase the debt relentlessly from the customer's bank account into their own.
Despite government legislation that makes it easier – and legal – to charge interest and compensation, the take-up has been slow and it's not just down to ignorance of the new rules.
Outstanding payments to small companies are up almost 40 per cent from £18.6bn last year. Research also shows that businesses are waiting an average of 41.5 days beyond agreed payment terms for invoices to be settled.
While the government has brought in a system of paying public sector invoices within ten days, three-quarters of small companies haven't yet replicated that and still offer much lengthier payment terms to customers. I have to ask: why would you?
What's the point of an invoice that isn't paid? Why would you do the work, ensure customer satisfaction, send a timely invoice, and then not bother to chase it up when it falls overdue? And why offer 30 or 60 days as standard? What's wrong with 14 days? Seven days? Or payment upon satisfactory completion/delivery of the job/product?
According to debt recovery agency Lovetts, businesses are singularly failing to take up their right to charge interest and claim compensation on late payment. In the first quarter of last year only 31 per cent of all their activity had late payment interest (LPI) applied. At the start of this year it was closer to 37 per cent. Certainly more encouraging, but there is still a significant amount of work to be done in encouraging more businesses to claim compensation and charge interest, and attack persistent late payments in their credit control procedures.
Did you know that compensation can be claimed for every invoice that was not paid within the credit period? That compensation can be claimed even if the invoice has now been paid? Or even that businesses have up to six years to claim the compensation?
The LPI legislation has two purposes; firstly to compensate creditors for the late payment of debts, but secondly to deter late payment. Clearly the latter will only work if the Act is actually used in anger.
But while the use of LPI has taken a long while to be accepted by many companies, ignorance of the legislation and how it can be adapted by individual companies is not the main reason behind the slow uptake. A fear of alienating clients seems to be to blame.
Charles Wilson of Lovetts is urging businesses to look seriously at the barriers to claiming LPI and compensation and start addressing them. The legislation is there to protect business, he said, and with cash flow so difficult in the current economy businesses should be using all the tools available in the battle to survive.
Sounds good when you hear it said like that, doesn't it? But the reality is that it's not quite that easy. Sure, the process is simple, and when used can be very effective. The fact is that businesses just can't afford to lose customers by taking legal action against them.
Business owner Colyn Stevenson runs a number of companies, but lost one due to late payment by a major customer. "Business owners don't want to provoke the wrath of customers they want to keep," he said. "You've got to be very strong, and it's very difficult if the customer who isn't paying happens to make up 30 per cent of your business. That's common. The measures only come to bear if and when you have decided enough is enough and you don't want to do business with the customer any more, and you actually have enough other work to compensate for the loss of that client."
Infuriated and frustrated by his own personal experiences, Stevenson decided to help other businesses avoid the same problems. He launched a website towards the end of last year – www.due2pay.co.uk – aimed at encouraging companies to pay their debts and be respectable.
It's not just a name and shame website – although that does happen. Due2pay contacts the late payer and offers them a last chance to settle before listing them on the site as a problem payer. Companies can then search the site for information on their customers' payment habits and make a decision whether or not to sell to them before they draw up a contract.
It's an evenhanded approach to debt recovery but Stevenson is adamant that companies should be able to see details of businesses that consistently fail to pay on time. He says that had he had access to this kind of information, he wouldn't have done business with the customer that ultimately caused his company to fail.
