How to end the scourge of late payment
Repeated phone calls, duplicate invoices and statements, as well as final reminders, are the bane of every small businesses’ accounts department.
Monday, 10 Mar 2014 15:49 GMT
Late payment: too many firms do not enforce their terms and conditions
Why cannot customers pay on time? The answer is because they either have cash flow problems or they prefer that your money sits in their account. Management Today has estimated that chasing late payments costs the average company 3.7 percent of their annual turnover with the average payment duration running to 41 days.
This situation has been the norm for as long as anyone can remember with the periods of longer credit stretching in times of plenty but contracting to requirements for money up front in a recession. However many firms simply will not pay up front, or on time, and if refused these terms they seek out companies that will extend free credit.
How this will work in practice remains to be seen, but what all businesses must ensure is they include full payment terms in their trading conditions”
Last week the European Commission introduced its UK Late Payment Campaign which aims to put in place strict time-lines and tough penalties for payment between businesses, and between businesses and public authorities. The directive says firms have “a statutory right to interest 30 days after the date of the invoice, unless another payment period has been negotiated in the contract.”
How this will work in practice remains to be seen, but what all businesses must ensure is they include full payment terms in their trading conditions. Incredibly, some companies do nott have them or update them as legislation changes.
Ian Carrotte of south west-based credit management outfit ICSM Credit says: “I am truly amazed at how many businesses I speak to on a daily basis that either have no trading terms and conditions, or are using inadequate versions copied from a friend or downloaded from someone’s website.
“This basic business tool is absolutely vital to a company’s success and will help to avoid many a dangerous pitfall. It is quite simply good, sensible business practise to make sure you have got solid trading terms and conditions in place. They are your points of reference when it comes to getting paid or should you ever face any kind of litigation over the provision of goods or services to your customers. Without them you could find yourself on very stony and expensive legal grounds.”
One tip that most credit controllers give is to include a clause in your terms that debtors are liable for a fair rate of interest over the base rate from the date of the invoice in the event of late payment and are liable to all recovery costs. The advice is if you have not got terms then get some profession-ally drawn up and then to enforce them to ensure improved cash flow.
