The FSB survey of over 10,000 small firms are still suffering late payment from Government and its agencies despite making commitments over a year ago to pay within 10 days.

The report found that local Government is likely to pay one in four invoices late, and central Government and Government agencies make one in three payments late. This is despite putting a Prompt Payment Code in place and central Government promising to pay within 10 days at the start of the recession in 2008.

In this recession hit year over half (52%) of those surveyed reported that profits had fallen in 2009; and as the recession took hold all businesses felt the pinch, however it is the small business community which bears the brunt of this practice and are leaned on by big businesses which continue to pay late. The survey shows UK central Government (31%), Government agencies (30%), EU institutions (30%), NHS (29%) and local authorities (25%) all put the pressure on too, despite promises to the contrary.

The private sector is little better with businesses recording late payment of 34% according to the survey.

Frustratingly, this had impacted of many businesses who have had to resort to using their own long and short-term finance. The survey shows that 41 per cent dipped into personal savings and 43 per cent used their overdrafts last year. Twenty one per cent used a personal credit card. This may be an indication of self-reliance as they encountered a banking sector which refused to lend.

While large firms have sufficient reserves to cope with late payments, a small business relies on payment within the agreed timescale to ensure it has a steady cash-flow.

The FSB is now urging Government to take the lead in tacking this problem by implementing a ‘Social Clause’ in national and local Government contracts. This relies on the Government stepping up its game, paying swiftly and then giving a guarantee that when the Government pays the lead contractor quickly, this is passed down the supply chain to all sub-contractors – with penalties attached for persistent non-compliance.

John Wright, National Chairman of the Federation of Small Businesses, said:

“It is shocking that after the Government put the Prompt Payment Code in place so many businesses are still being paid late. The public sector needs to take the lead in more than word alone and set an example that paying late isn’t acceptable, as this problem persists in the private sector.

“Small businesses rely on receiving payments within the timescale agreed to maintain cash-flow to ensure the business can run on a day-to-day basis. This is why the FSB is calling for the introduction of a ‘Social Clause’ in all Government contracts.
“However, this clause must have teeth, and any business found to persistently breach the terms should be fined and be warned they may lose contracts in the future. This will give small businesses confidence and go far to change the poor record of behaviour on this issue.

“Late payment is not a new issue, but it has been a particular problem in the past year and it is more important than ever that this worrying practice is brought to an end.”

The scheme was introduced to help those firms struggling with late payment which often led to customers defaulting on these late payment often finding it difficult to get sufficient insurance cover to safeguard themselves.

Under the scheme, which is due to run until 31 December 2009, suppliers who have seen their insurance reduced can buy six months of government-backed insurance either to restore cover to the original level or to double the amount they are able to obtain from the private sector up to a set maximum.

Research carried out by the government has suggested that businesses are adapting to reductions in their insurance by managing their credit control more actively. Late payment continues to be a major issue with UK companies. But by adopting more rigorous credit control over late payments has reduced their dependence on the scheme.

However, a number of businesses have not been eligible but they have also needed the time to adjust to reductions in their cover. Forcing their need to control late payment rather than rely on their cover.

To provide them with some extra breathing space, the government has introduced three changes to the scheme.

Where a business has seen a reduction in its credit insurance since 1 October 2008, the scheme now provides six months top-up cover at a price of 1 per cent rather than the original 2 per cent.

The old lower limit of 20,000 has been removed and the upper limit of 1 million has been increased to 2 million.

However, vigilance on late payment and effective credit control remains the watchword for businesses.

To use the scheme, businesses should contact their trade credit insurer.

As late payment bites the ABI figures show that trade credit insurance remains a vital lifeline to businesses that are hit by the effects of the recession.

In Quarter 1, 2009: The total number of claims was 9,213, an increase of 48% from 6,225 in Q1 2008 and the total value of claims was 316m, an increase of 166% from 119m in Q1 2008.

Late payment and poor credit control is raising concerns among credit insurers and invoice discounters.

Trade credit insurance claims are a good indicator of what is happening in the UK economy and how late payments is affecting UK businesses. Clearly, the economic situation remains very tough and highlights the need for greater vigilance with late payment and the need to ensure effective credit control.

The question is – is yours or your staffs time better spent generating business than organising credit control? Many business owners do not want to let go of this essential task but is this, the best use of your time. Credit control is consuming and often needs skilled staff with the time and patience to make sure you get paid on time.

So if you want to concentrate on your core business, why not consider outsourcing your credit control. I feel sure the time saved can be more productively put to use growing your business.

Outsourced credit control will retain your identity with your client and should provide you with a much improved cash flow and lower debtor days.

With many businesses the lack of HR issues solved by outsourcing their credit control is a very attractive proposition. No need to consider holidays, maternity/paternity leave and sheer headache of management time supervising staff.

Outsourcing your credit control can range from partial outsourcing to total outsourcing. Why not speak to Alan Smith at Cashew Group they do a lot more than just Cashflow Protector.

It is the suppliers who are really feeling the knock on effect and credit control becomes a key issue in keeping their cash flow under control.
The Quarterly Credit Conditions Monitor also found that a third of small and medium-sized (SME) retailers and almost a fifth of large retailers have experienced a reduction in bank lending in the last three months. For those respondents who cited a fall in lending, more than two-thirds of SME retailers said it had undermined their ability to trade.

Many supplier businesses have expressed their concerns over the impact on retailers and in turn on them and there need to be more rigorous with their credit control.

“It’s clear from the BRC Monitor that the majority of respondents are not confident of trade credit insurers’ ability to assess risk accurately. The Association of British Insurers’ codes aren’t improving underwriting – as they were meant to. The government must put more pressure on these insurers to undertake proper research to ensure more accurate underwriting decisions.”

The insurers fail to see the impact on suppliers credit control and their concerns with relationships between retailers and their suppliers will come under further pressure. Price pressure for both has been a particularlar problem and these pressures will only create further credit control problems.

The increase of businesses showing signs of significant financial problems compared with last year is endemic throughout the country. Late payment and unpaid invoices are blamed by many companies with customers continuing to stretch payment.

There is a very diverse picture amongst sectors on a quarter on quarter basis:

Recruitment, engineering and manufacturing amongst others have shown substantial increases in problem companies and unpaid invoices.

Construction and professional services have in contrast shown reductions in problem customers quarter on quarter but unpaid invoices are of continuing concern.

We can see no evidence yet of a true recovery unpaid invoices and indications show that the recession is likely to be more prolonged than suggested by the government.

Analysis of payment trends with late payment as an indicator suggest continued increase in business insolvencies continuing for at least the next two years.

“Companies do not anticipate recovery until next year, but hit by poor turnover, an ongoing credit shortage, late-paying customers and pressure on interest cover, they will be unable to respond to the upturn for a further 6½ months after it commences.”

Yet again we see late payments as the cause of so many companies’ ills.

Roland Bergers Restructuring Survey 2009 also reveals that “firms are failing to control costs effectively in the face of these financial woes, and are dragging their feet over urgently needed restructuring.”

Controlling late payment with robust invoice chasing is key to business survival no mater the size of company.

Weak balance sheets

UK senior managers predict that their current lack of liquidity will put back their firms response to upturn by 6½ months on average. Approaching half (43%) fear that it will seriously damage their capability to capitalise on the recovery.

Nearly all (96%) firms involved in the study expect static or falling turnover in 2009 year on year, while alarmingly, over a fifth (22%) say they are on course for a cash crisis this year, with 17% at risk of insolvency.

However, UK firms are finding it difficult to improve their situation, as approaching half (43%) complain that poor liquidity is causing them to lose important business opportunities.

Cash control and efficient invoice chasing will help plug the liquidity gap.

Upturn not expected until mid 2010 the pain is set to continue, according to UK business leaders. Despite the reported emergence of green shoots, the vast majority (85%) do not expect recovery this year.

Over half of firms (57%) are not anticipating full upturn for at least another year from now, whilst the largest proportion - around a quarter (23%) - foresee recovery in Q3 of 2010.

Cash supplies running dry

Liquidity issues are being exacerbated by late paying customers and the ongoing difficult credit conditions.

Nearly all companies (94%) report a rise in late payment, and a similar proportion (95%) expect customer payment behaviour to worsen further in coming months.”

Wrong priorities and a lack of urgency

Despite complaining of poor finances, and not expecting recovery for some time, firms are still reluctant to place cost cutting at the very top of their agenda, and are dragging their feet when it comes to crucial restructuring initiatives.

Alarmingly, only 12% of firms are placing top priority on improving liquidity management moving forward.”

So many businesses’ problems seem to be their lack of control of late payers and by not controlling invoice chasing these unpaid invoices have a profound impact on their liquidity.

About the Study

The UK Restructuring Survey 2009 is based on interviews with a mix of board level decision makers (CxO level) and Financial Controllers at 100 of the UKs largest firms (turnover in excess of 250 million). This research forms part of an annual international study by Roland Berger Strategy Consultants the International Restructuring Survey 2009.

Roland Berger Strategy Consultants, founded in 1967, is one of the world’s leading strategy consultancies. With 36 offices in 25 countries, the company has successful operations in all major international markets. In 2008, it generated more than EUR 670 million in revenues with 2,100 employees. The strategy consultancy is an independent partnership exclusively owned by more than 180 Partners

Having a successful business with clients with whom you have a long working relationship does not preclude you from unpaid invoices. Those long standing clients may have financial problems of their own and are often are left with no alternative but to dump their burden on you.

This tale is typical of many businesses both large and small where they appear to be healthy and growing in terms of sales but that growth is being sabotaged by slow paying customers and unpaid invoices.

So what do you do to prevent being strangled by cash flow problems and unpaid invoices?

By implementing these simple practices you can help make those unpaid invoices in most cases a thing of the past.

1. Confirm client relationships in writing
First of all you need to get your ongoing relationship with your client in writing. This will protect you should you have a dispute at a later point. You need to do this at the beginning of the relationship when everybody is on good terms. Ensure they get a copy of your terms and conditions with the order confirmation or quotation. Make you’re your T&C’s are up to date and include payment terms and any interest that you can apply for late payment. If at any time you want update your T&C’s email a copy to all clients explaining that they have been updated and this latest version is the one you will be using on all new business. In our experience nobody reads these but if you have established the basis on which you will conduct business and more particularly payment terms - this will strengthen your case when chasing unpaid invoices.

2. Quote payment terms
Quote payment terms on all quotations and tenders and state that the quotation is subject to your terms and conditions which if possible should be printed on reverse. Your client needs your terms of business when you quote or accept the order. It is too late to just print them on the back of your invoice.

3. Get the name of the person responsible for raising payment
Find out the name of the person responsible for raising payment, they are your point of contact for payment – not the person who gives you the order. This is this person who will help your cash flow.

4. Keep a payment record sheet
When you contact a customer for payment, keep a record of the conversation I recommend a simple payment record sheet. Note what is said and be specific about agreeing future actions and, if appropriate, confirm this by email

5. Keep track of payment promises
If a promise of payment is made, ensure you diary forward to call them the day after payment is due, if it doesn’t arrive or to thank them if has. The people in accounts spend their lives fending off people chasing for money so a simple thank you will go down well and they may well remember you next time your unpaid invoice is due for payment.

6. Don’t let up on payment chasing
Never let chasing slide – be persistent – it is your cash flow that is suffering from unpaid invoices.

7. Don’t be too lenient
The more lenient you are and the more you let payment slide the more your customers will assume you don’t mind waiting and that you are prepared to give them extended credit.

8. Is factoring right for you?
Think long and hard before you resort to factoring. You probably won’t need it if you get your unpaid invoices paid - so keeping your cash flow on track – why fund your customers?

9. Understand the time and costs involved in outstanding invoice collection
Be realistic about what it costs you in both time and money to collect your outstanding invoices. Cash flow is essential for your survival you want to eradicate unpaid invoices.

10. Get Cashflow Protector
If you don’t like chasing money and your time is more profitably spent running your business why not consider outsourcing to Cashflow Protector® the specialists who will retain your customer goodwill, get you paid and keep your cash flow on track.

Make unpaid invoices a thing of the past - after all it is your money slow payers are using to fund their businesses!
Call Alan Smith at Cashflow Protector for a free consultation and advice on cash flow issues. Telephone 020 8536 4138 or email him at alan.smith@cashewgroup.com.

With banks lending less money many businesses are finding it difficult to get additional lending or extensions to their overdrafts. Many are being pressured by their bank to reduce current overdrafts. These businesses are pushed to try to extend their payment terms without advising their supplier which leads to slower payments and unpaid invoices.

It’s a fact that most businesses will suffer unpaid invoices which can lead to bad debts. Historically SME’s have written off annually £3,500 in unpaid invoices and from our experience this national average figure is growing.

SME’s are often at the end of the food chain and this is particularly apparent in the construction industry where so many of the sub contractors are left with unpaid invoices when the main contractor suffers financial problems. This problem cascades down the chain from the various specialist sub contractors to the individual sole trader contracts. So the unpaid invoices becomes a fact of life for each these businesses.

We are finding these unpaid invoice problems more and more in other areas such food supply and retail supply.

Businesses often become emotionally involved in the chasing of unpaid invoices, feeling let down by their clients who don’t pay on agreed terms but still expect them to perform.

If you have unpaid invoices – don’t get emotionally involved, get Cashflow Protector.

The disadvantages of invoice factoring

Invoice Factoring can often solve immediate cash flow problems. But you have effectively sold your debts and have little or no control over the actions of the factoring company. Invoice factoring is a multiple of the cost of an overdraft. Many businesses see invoice factoring as a habit - something they would desperately love to be able to do without. Not exactly the most positive endorsement.

At a fundamental level most people, simply don’t understand how these invoice factoring arrangements work. If the factor (or discounter) proposes advancing (say) 85% of the gross invoice value, almost everyone assumes they get the other 15% (less a bit for charges) once the customer pays. There is, an undeniable logic to this. But it’s not true. You cannot and will not understand how one of these facilities works by looking at a single invoice. The lender advances you up to a maximum of say 85% of the value of your entire sales (or receivables) ledger at any point in time (assuming all sales invoices are eligible). So you don’t get the other 15% until you close the facility. It’s that simple. And although you might not feel quite as keen as you did before, don’t kid yourself.

Terminating an invoice factoring agreement (if things don’t work out) and taking back control over the sales ledger in-house sounds straightforward enough but in practice it isn’t. Typically those who have experienced the endless hassle once never want to go through it again.

What are the alternatives to Invoice Factoring?

First you need to consider what you want to achieve - in most cases it is funding due to a lack of cash flow. Let’s get down to basics if your customers paid your invoices to your agreed terms would your cash flow provide your business with the funds to run the business and hopefully a profit. If this is the case your issue is to improve the payments from your clients and not to introduce the additional costs of invoice factoring. If you go the factoring route you are not solving the problem but simply funding your customers’ habit of not paying on time.

Remember - the more lenient you are and the more you let payment slide the more your customers will assume you don’t mind waiting and are prepared to extend their credit.
This is where Cashflow Protector can help businesses improve their cash flow and it answers the key concerns businesses have with invoice factoring.

• Cost - it is a lot cheaper than factoring and no commission charges

• Client retention – it protects customer relationships

• Payment – all money (100%) paid direct to you

• Control – you can view our actions taken on your behalf and update payments and put instructions on hold by accessing our secure website at any time

Cashflow Protector - a real alternative to invoice factoring

Cashflow Protector is a powerful cashflow management tool that radically improves your payment rates. It works by chasing your slow payers – without upsetting your clients. It just get you paid! To find out more take the tour or call Cashflow Protector on 020 8536 4138.