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23 Oct 2008
Comments:2
When MTa International, a training firm run by Justine and Martin Thompson, challenged Alliance Boots’ decision to enforce 75-day payment terms on suppliers earlier this year, it was hailed as a landmark victory.
It was a good story, but it did not change the relationship between small businesses and big customers. Instead, the case emphasised just how little has changed in the 10 years since the UK government introduced legislation to protect smaller firms from cynical payment practices.
Research suggests that, if anything, since 1998 the average number of days taken to pay invoices has increased. The Thompsons apparently had a good product and a healthy enough order book to take the risk of upsetting a big customer.
Surveys have claimed that late payments result in business failure, but late payments are a fact of life. They might damage your cashflow, but they will not put you out of business unless you fail to plan.
The killer is not late payment, but non-payment. In financial times like these, with credit in short supply and getting more expensive, businesses can be forgiven for giving their working capital less work to do.
The crucial thing is to spot the difference between those who pay late for tactical reasons and those who have no choice in the matter.
Credit data is historical. If it were up to the minute, there would be no sudden bankruptcies, no nasty surprises and less to fill the financial pages. Credit ratings reflect the way the world was, rather than the way it is.
If businesses were prepared to share information about their customers’ payment records, credit scoring could become a much more exact science. The crucial measure is the difference between a given business’ receivables and the industry average, which gives a much clearer indicator of risk.
This detail is not yet available from business information providers and it will not be unless they can persuade their customers to share trade infor mation.
ICC is addressing that issue and is in the process of building a web site
where contributors of trade information can visualise their own portfolio
payment profile.
ICC is recruiting contributing partners and this offer is open to CRN
readers.
Paul Westcott is product development director at credit service provider ICC.
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Do you agree?
Damaged cashflow does send businesses under
The article claims that you can cope with slow payers if you plan for them. The trouble is that right now many customers are unilaterally slowing down their payments more than before. Tesco just told all its non-food suppliers that it will now take 60 days to pay instead of 30. Few businesses can absorb that kind of damage to their cashflow, especially now that the banks are tightening up on overdrafts.
For many businesses, over half their sales in a given period come from a handful of large customers. Any one of these changing their payment behaviour can suck £000s out of the cash flow, causing a crisis.
Sure, non-payment is a bigger problem, but this is usually from new and often smaller custoemrs. Don't minimise the threat of delayed payments from established customers in these credit crunched times
Posted by Julian Dent | 29 Oct 2008
SMEs need to address financial processes to avoid late payments
SME owners clearly need to address financial processes ? the gulf between those with healthy cash flow and those sweating over debt is a paper versus electronic payment issue. The roll-out of Faster Payments, allowing almost ?real time? electronic funds transfers (EFT), will widen that gulf even further if businesses don?t adopt an IT solution now.
The cost of processing a cheque is around ten times that of an EFT, with longer clearing times at the bank making a late payment even later and causing cash flow issues for both parties concerned.
Electronic payments save so much time and resource ? it?s difficult to understand why any SME would choose to receive cheque payments. Investing in simple software allows businesses to set up secure, validated EFTs. Business owners can take control of when they are paid; they don?t need to rely on customers to pay on time because the software does it for them. Who can afford to spend 38 days a year just chasing late payments of £30,000 when overdue invoices of just £20,000 can cause bankruptcy?
This is the twenty-first century and yet the Bacs research shows astonishing numbers of SME owners are still entrenched in using unnecessary, archaic processes that could cost them their businesses.
Yours sincerely,
Adrian Stafford-Jones
Managing Director
Albany Software
Posted by Adrian Stafford-Jones | 24 Oct 2008
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