BusinessCorporate FinanceBetter late then never?

Better late then never?

Consistently late-paying customers can wreck a business's cashflow. But only if you let them, say our experts

Eight years after laws to outlaw late payment, it is still a crippling
problem. Why?

Glen Bullivant
Institute of Credit Management

The misunderstanding most people have about the UK legislation and, indeed,
the European directive that followed, was that it was, in fact, enabling
legislation. In other words it is legislation that allows, but does not compel,
somebody to do something. So businesses are free to choose whether or not they
want to apply late payment interest and the terms of the Act. That puts a
different slant on the question of whether the legislation works. The
legislation works to the extent that it enables people to do something.

Whether people do it or not is entirely up to them. We were opposed to the
legislation. We always thought, and I think have been proved correct to a
degree, that legislation by itself would not be the answer. What is needed is a
change in the payment culture ­ self-regulation, proactive credit management,
effective tools in that area.

The legislation was designed to help SMEs but the ones who have benefited
most are the large companies, because they have less to lose in terms of the
customer/supplier relationship.

They have more muscle and more sophistication in terms of their systems and
calculating interest. So the very people the legislation was supposed to protect
are now the victims of it.

But there are things you can do. If I’m going to be doing business with
somebody I know beforehand is a slow payer, I am going in with my eyes wide
open. It may well be that I can negotiate, not to get the payment terms down
(because I know they’re not going to pay any faster), but to charge them a bit
more than I would have if they had been a prompt payer.

Are these industries, geographies or companies that you should be wary

Stephen Alambritis
Head of parliamentary affairs
Federation of Small Businesses

The Federation of Small Businesses has produced league tables of the payment
performance of larger companies since 1999 using their annual reports.

Our first league table revealed that telecoms supplier WorldCom, which of
course went on to become one of the biggest liquidations in the world, was
taking 258 days to pay on its bills.

Our latest report shows that agricultural business take 64 days to pay. We
are also critical of certain companies in the construction sector.

The best-paying sector is financial services, and companies there are to be
applauded. Our league tables also congratulated good payers such as the All
England Lawn Tennis Club.

To change the culture, it has to start at the very top. We know that the
European Commission as a body is very late in paying its invoices. And if you
look at government departments, there are some that lag behind ­ NHS trusts, the
Audit Commission, the local authorities.

It is important that we all lead by example. Years ago, and I’m talking years
ago, Margaret Thatcher was addressing a group of NHS buyers and she said one of
the ways to improve your cashflow is not to pay so early.

We have also had other famous examples of well-known business figures
admitting that in their early days one of the techniques they used to survive
was to hold back slightly on paying suppliers.

I think the banking industry can help in many respects by not encouraging or
sending those kinds of messages. Zero tolerance can happen if we all talk the
same talk.

What can businesses do to protect themselves from exploitative

Martin Williams
Managing director
Graydon UK

I know of a graphic design agency that was working for a very large retailer
on some packaging design and after three or four months of late payment, the
agency owner actually turned his large customer down.

The cash was drying up and he would have had to make people redundant if
things continued like that. But in that situation it is also very clear that the
small business had too many eggs in one basket.

We often say to smaller companies that have cashflow difficulties or late
payment problems: don’t try and chase money in a remote fashion by sending
letters. Certainly with a larger organisation, try to get friendly with somebody
in the accounts department who can perhaps be your friend inside.

With regard to a zero tolerance policy, it’s up to each individual company.
There are some companies that would terminate a contract on being paid late even
if it’s the first time it happens. Other companies will give it a bit of a
chance. Each company has its various levels of tolerance.

But all this could be avoided by having a good, clear credit management
process, striking a good relationship with the company you’re dealing with,
being personal and finding out where the invoice goes, in what format they want
it, and just chasing firmly but fairly.

We have the examples of small businesses turning up outside the office or
home of the chief executive demanding money with a placard. That’s extreme, but
as a business you owe it to yourself to know who you’re dealing with. Terms on
delivery and length of contract are very important, but equally important are
terms of payment.

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