Commercial debt reaches £60bn
Half of all trade debts are being paid late contributing to total commercial debt reaching a staggering £60bn, according to the latest figures from the Credit Services Association.
The news comes as Britain approaches the third anniversary of the introduction of the Late Payment Act, a measure intended to alleviate the burden of dealing with delayed settlement. The survey, based on a massive investigation by the Credit Management Research Centre at Leeds University, also reveals that of 200,000 businesses that extend credit, a fifth are now employing debt recovery agencies.
More than half of the debt collectors say the act has failed to have any effect on debt culture with 65% reporting no change since its introduction in November 1998.
However, strategies to deal with late payment appear to have changed in any case. Collection agencies report they have veered away from a ‘hostile’ initial contact with debtors, to one of encouragement and ‘customer care’.
Ken Waters said that agencies were now ‘focusing on managing the customer, rather than the debt.’ The Late Payment Act was introduced to allow SMEs to demand payment on time from larger client businesses.
Legislation allowed businesses to claim 8% interest on late payment defined as anything beyond a 30 day period. From 1 November 2002 all businesses, including public sector bodies, will be able to charge interest on debts with any other business.
As many as 80% of SMEs are thought to have no written debt policy, signalling poor planning for credit control.
There is much disappointment that it appears to have had little effect.
Links
Financial services bucks late payment trend
Businesses urged to accept late payment ‘fines’