Two answers to late payment questions

Nearly a quarter (23%) of insolvencies in the UK are caused by late payments, and your SME clients may be particularly at risk.

Late payments are a problem for small businesses who depend on orders from large businesses. Many of the latter sit on cash for as long as they can to improve their own accounting position – at the expense of your clients.

The Federation of Self-Employed and Small Businesses estimated back in 2016, that if all business payments were made on time there would be a £2.5bn boost to the British economy.

Not only would this make each and every one of us richer, but it could also have kept 50,000 businesses operating which have gone to the wall.

The same damning report found that the average value of a late payment invoice was £6,142 and more than a third of small businesses reported running into cash flow problems as a result. Perhaps as many as 30% were forced to use an expensive overdraft or other debt finance.

Since then, the average late payment has gone up to £8,500, plus:

• The average number of days invoice was paid late in 2019 has doubled to 23 days from 12 days in 2018.
• Invoices paid late were larger in value (£34,286) than those paid on time (£24,624).
• Invoices with long payment terms (between 60 and 120 days) are also being aid later.
• Larger debtors tend to insist on longer payment terms (49 days) than smaller debtors (37 days)

You may have suffered yourself. Professional and legal services businesses suffered the highest proportion of late payments in 2019. 70% of invoices were paid late, up from 30% in 2018. Manufacturers, retailers and creative industries businesses were also heavily impacted by late payment of invoices.

But if the problem is getting worse, there could be some solutions.

A 30 day limit for payments?

Labour peer Lord Mendelsohn recently introduced a Private Members Bill in the House of Lords aimed at addressing late payments and helping strengthen the powers of the Small Business Commissioner.

Lord Mendelsohn’s bill - if it became law - would legislate a 30-day limit for all invoice payments. This would be enforced by the Small Business Commissioner who would have the power to impose large fines on repeat offenders.

In a statement of the announcement, Lord Mendelsohn said: “Late payment is crippling small businesses while the UK economy is crying out for investment. By failing to tackle late payment we are starving our small businesses of the capacity to act.”

He went on to suggest that the recent huge escalation in outstanding payments shows that decades of promoting ‘culture change’ has only made things worse, and that it was time to deal with the issue once and for all with a package of measures.

The Bill would also ban predatory payment practices such as prompt payment discounts and charges for onboarding and staying on supplier lists.

Are your clients, or your own business, being affected by late payments? Find out more about how the solution could be Invoice finance and how you can offer business finance as a service to your own clients

Addressing the problem

The Association of Accounting Technicians (AAT) has looked at the problem of late payments.

They have made some suggestions:

• That the Prompt Payment Code is made compulsory for companies with more than 250 staff
• That payment terms should be halved from a maximum of 60 days to a maximum of 30
• That a clear, financial penalty regime for persistent late payers should be introduced and enforced

AAT’s head of public affairs and public policy, Phil Hall, said in a press release. “Despite lots of noise from Government, they have only provided more bureaucracy, tinkering and an emphasis on voluntary measures.”

AAT supports the measures being proposed by Lord Mendelsohn and hopes other politicians, from all parties, back the bill.

Having your clients paid in 30 days would be a boost for them – but of course, the chances of a private members bill making it onto the statute books are small, particularly in the current climate, when the focus of Parliament is on Brexit deals in billions rather than on the woes of SMEs.

But there could be another solution to deal with late payers

For many clients, and especially those who operate in the business to business sector, an Invoice Finance arrangement may be the best solution. It can provide prompt payment and consequent cashflow support plus if required, the support of a credit control team.

And the costs may be reasonable, at leased compared with those of debt lenders. 

However, there are may types of Invoice Finance, and many providers. Suggesting the most cost-effective solution for your client may become a major headache for you.

Fortunately, there is actually a simple way for an accountancy professional like yourself to become an expert in Invoice Finance provision, simply by contacting us at Rangewell.

Becoming an Invoice Finance expert with a single phone call

At Rangewell we help businesses of all kinds find the funding they need - whether it is from traditional sources such as the high street banks, or innovative new solutions from the alternative lending market.

Our expertise includes Invoice Finance. 

A call to us can get our experts working to find the Invoice Finance solution your clients need, and scouring the entire financial market for the most competitive deal

It means that you can provide your clients with the answers they need to late payments. Our service is free, for you and for your clients - in fact, we may even be able to provide an additional revenue stream for your practice.

Working with Rangewell is simple – we have a dedicated accountants partnership team for you to call – and once you have, you can have our nationwide resources working to help you grow your practice.

To find out more about working in partnership with Rangewell to find better answers to your clients' funding needs, call us. Our service is free.