Would you expect to do your weekly grocery shop and then pay the retailer 3 months later? Why should it be any different when you raise an invoice to your supplier? Three in five UK businesses are owed money from late payments, fueling stress and cash flow problems.
The culture of late payment has a knock on effect for the whole supply chain with business owners having to make tough decisions to keep their business out of the red. Whether forcing pay cuts on themselves, or their employees, relying on their overdrafts and potentially harming their reputation by paying their own supplier late.
What are the dangers for SMEs that are paying their invoices late on a regular basis?
- Damage Business Relationships
Forging strong working relationships with your suppliers is the best way to aide business growth. The longevity of a good relationship lends to better rates and offers. If you don’t respect their business payment terms, this risks severing the connection and security built up over the years. More than half of adults in the UK (58%) said they would boycott a business if they knew they became a late payment offender.
- Damage Company Reputation
If you are seen as ‘late payers’, it is a small world and news may spread across an industry with other companies not wishing to work with you. If they do take your business, there certainly won’t be any flexibility in pricing or payment terms. For those that have been on the receiving end of poor payment practice, the majority (80 per cent) said they would refuse a job with a potential customer if they were known for paying late.
- Affect Credit Rating
Late payments can be brought up by the Credit Bureaus when apply to take on any financial support. This may lead to a refusal or certainly expensive terms for your business.
- Legal Impacts
Late payment is considered a breach of contract. It could mean breaking contract with penalties or maybe even legal action.
You have a legal obligation to pay your invoices. New Government Legislation introduced in February 2105, dictates that every business in the public sector supply chain MUST comply within 30 day payment terms. The UK Government have gone one step further with the introducing the Prompt Payment Code, with signatories undertaking that they;
- Pay supplier on time, within agreed terms;
- Give clear guidance to suppliers on terms, dispute resolution and prompt notification of late payment;
- Support good practice throughout their supply chain by encouraging adoption of the Code.
- Mounting Interest
Some companies Terms & Conditions have the ability to charge interest for every day you exceed the agreed payment terms. This could mount up in a very short space of time.
- Low Employee Morale
When a company defaults on its agreed terms, the frontline have to undertake ‘damage control’, commencing sensitive discussions that could be potentially very volatile if talks go sour. This could cause high stress levels and low employee morale across the accounts department.
- An unclear picture of Company Finances
Late payment serious hamper a company’s accounting operations, putting accountant on the back foot when it comes to accurately managing a company’s finances and financial obligations. This hinders the business on making smart financial decisions moving forward.
- Domino Effect
Paying late on your invoices could cause your supplier to pay his invoices late, and the dominos start to fall. This negatively effects the industry and economy as a whole. restricting business growth and hindering business opportunities.
Avoid the damaging disadvantages of delaying payment and keep your own cash flow consistent
The only way to avoid paying invoices late is to have a stringent accounting process and the cash flow to fund the payments.
Efficient, streamlined accountancy operations will deliver payments on time. There are a whole variety of accounting automation software’s available to companies for small monthly costs.
Cash flow solutions like invoice finance or factoring can aide your own business, but releasing cash trapped in your own unpaid invoices within 24 hours of financing your invoice. Break the cycle of cash flow restrictions.
GRENKE Invoice finance have been supporting SMEs in the UK for 15 years and continue to offer clients access to flexible products, fast processing and peace of mind.
