Government still fails to pay on time, with one in three payments from the public sector being made late, FSB-ICM report shows

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.

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.

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

Unpaid invoices are a growing problem for businesses in most industry sectors. With banks less willing to help businesses with further lending or even reducing or removing overdrafts businesses are using the suppliers to fund them by way of unpaid invoices.

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?

 There is nothing revolutionary about what I am about to tell you but by implementing these simple practices should help make those unpaid invoices in most cases a thing of the past. 

1.     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 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.     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. It is this person who will help your cash flow.

4.     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.     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.     Never let chasing slide – be persistent – it is your cash flow that is suffering from unpaid invoices.

7.     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.     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.     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. 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. Email your enquiry to;  alan.smith@cashewgroup.com

Cash flow worries as a result of increasing late payments are causing small businesses the most headaches, according to the latest Economic Downturn Panel survey carried out by the Forum of Private Business (FPB).

Almost a quarter (23%) of respondents to the survey selected late payment and, subsequently, poor cash flow as their key issue more than those who voted for a lack of sales (20%), and complying with health and safety regulations (11%).

Even declining bank lending was deemed to be less of a concern than late payments. Banks tardy decision making was chosen as the major issue by 6% of respondents, and the steep cost of bank lending by 4%.

In all, 42% of FPB members who took part in the survey reported a deterioration in prompt payments from customers typically bigger businesses compared to just 3% who said there had been an improvement. A total of 56% said there has been no change from previous months.

The FPB, which names and shames poor payers in its Late Payment Hall of Shame, is working with the Government to find solutions to payment problems, including encouraging companies to sign up to the new prompt payment code.

Small firms cash flow is being decimated by credit restrictions and declining trade. Our research suggests that late payment, which has always been a problem, is now threatening the very survival of many businesses, said Phil Orford, the FPBs Chief Executive.

We want the UKs biggest companies to take the lead and pledge to pay their suppliers on time by signing up to the Code in order to set in motion a consensus of prompt payment through the supply chain.

Already, under the Late Payment of Commercial Debts (Interest) Act 1998, small businesses have a Statutory Right to Interest (SRI), meaning they can in theory charge for late payments. However, few take advantage of this or are prepared to speak out publicly out of fears that large companies will simply take their business elsewhere.

Cashflow Protector is here to help business collect late payments while still trying to maintain good business relationship

As part on the government’s push to support businesses they have amended the trade credit insurance top-up scheme – this initiative does not remove the need for businesses to control their late payment – but should increase the number of businesses that can take advantage of it.

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, 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.

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.

Cashflow Protector can help businesses of all sizes with their credit control and debt collection