Getting a grip on the late-payment culture

I f Carlsberg paid their bills in a timely manner, it would probably be the best way for the beer-making giant to ensure the viability of its suppliers. This month, the Danish brewer was inducted into a “Hall of Shame” for late payers for the third year running after it e-mailed suppliers to tell them they would be paid at the end of the month – plus 93 days.

The policy may have been a cost-saving measure for the cash strapped firm which announced plans last week to cut 2,000 jobs – about 15% of its workforce – in response to slowing sales.

But the policy flies in the face of the Prompt Payment Code, a government and industry-backed plan to ensure signatories undertake to pay suppliers within a maximum of 60 days, in line with late-payment legislation requirements, and to work towards adopting 30 days as the norm, and to avoid any practices that affect the supply chain adversely.

Last month, the Department for Business, Innovation and Skills ( Bis) launched an open consultation into regulatory changes regarding late payments and “grossly unfair” terms and conditions in conjunction with the Scottish Government.

Late payment is a common problem for businesses of all sizes, but it can have a disproportionately negative impact on small to medium- sized businesses (SMEs) and self-employed people, as it can cause cash-flow issues.

Overall, UK SMEs are currently owed £26.8billion – an average of £31,901 per business or contractor. A 2014 Federation of Small Business survey found that 51% of its members had experienced late payment over the previous 12 months, reflecting the widespread nature of the problem.

Worse is that 60% of firms fear chasing bills in case they upset their customers.

A recent survey of credit personnel by commercial litigation firm Lovetts, has found that 58% would not claim latepayment compensation for this reason.

This is despite the fact that almost one in four businesses are being paid on average one to two months late.

The survey found that only 22% get their bills paid within terms, 49% are paid within the following month while 23% have to wait one to two months after the payment-due date.

Cost is not a barrier to taking action; the survey found that less than 5% of firms were put off by the cost. Furthermore, 20% don’t think it would be worth the bother and 18% of the businesses surveyed think it would take too much time.

As such, 48% never claim late-payment compensation, leaving just 20% that said they do. Surprisingly, when asked about claiming late-payment compensation from former customers, which businesses are able to do going back six years if their terms and conditions allow it, almost 60% said they wouldn’t because it would affect their reputation.

Charles Wilson, chairman of Lovetts, said: “The perception that action will lead to loss of custom is actually quite far removed from the reality in our experience and, as such, it is a real concern that so many businesses live in fear of upsetting their customers by claiming what is rightfully theirs.

“A lot of this comes down to the terms and conditions which form the basis for the relationship: if it’s made clear from the outset that late-payment compensation will be claimed if payments are overdue, then there are no surprises and, in fact, it can often incentivise customers to pay within terms to avoid the additional cost.

“We would really urge credit professionals to reconsider this highly cautious attitude to help get a grip on the late-payment culture that is so pervasive in the UK today.”

Philip King, chief executive of the Chartered Institute of Credit Management (CICM), adds: “It is important that firms taking on new customers, extending credit, and expanding their order books have robust terms and conditions in place that will protect them should bad debt become an issue.

“It is also important that they use all of the tools at their disposal, including late-payment legislation, best-practice credit management and the Prompt Payment Code (PPC).

“Preserving good customer relations is important, but so is preserving the future of your business.”