Setting the credit record straight

Paul Westcott: Surveys have claimed late payments result in failure

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.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Financial and Reporting
• Management
• Strategy