Late payment transparency for SMEs

It has become a common trait for companies and businesses to delay paying invoices; perhaps due to their own cash flow problems. This in turn can cause financial problems for dependant businesses down the chain of supply.

Cash flow is often cited as the number one challenge facing small and medium sized businesses (SMEs).  Corporate insolvencies also remain alarmingly high.

New proposals have been mooted recently by the Business Minister to compel larger businesses to publish data about their own payment practises, average payment times and performance. The idea behind such proposals is to create a transparent system to furnish SMEs with more information on the payment practices of larger companies.

For SMEs and subcontractors with tight budgets, this sort of information could potentially be of great value in assisting them in determining who to enter into contracts with by being able to compare the role models with the less reputable.

According to the Government’s website Business Minister Matthew Hancock said: “Tackling late payment is at the heart of our drive to help small businesses. Coming from a small business background, I know just how critical late payment can be for small firms’. We know that small businesses are often reluctant to risk losing business by using the redress measures we’ve put in place, so we want to tackle the underlying culture by increasing transparency on payment practices and performance.”

“The measures we are consulting on will make it clear to small businesses and consumers alike which large businesses behave properly, and those that think they can ride roughshod over their suppliers.” 

Small businesses can also take simple steps to manage bad debts by being aware of options and following simple procedures.  By doing this, business owners can minimise bad debts and keep cash flow under control.  For example:

  • Ensure that terms and conditions are up to date and legally compliant.  This will afford a business with a much better chance of being paid on time and set out the consequences of late/non-payment.
  • Carry out credit checks at the outset and request payments on account.
  • Request payment of invoices as soon as they fall due.  Invoices which are more than 6 months outstanding are more likely to be unrecoverable and then written off.
  • Take swift debt recovery action in the County Court.  Most businesses want to avoid costly and time consuming court action and may therefore pay sooner.
  • For undisputed debts of more than £750, consider serving a statutory demand which is a precursor to insolvency action.
  • Enforcement of judgments.  The customer may have assets such as equipment or stock which could be seized by bailiffs or may own a property against which the judgment debt could be secured.

The government’s consultation paper can be found online here.