Keep chasing late payment
Everyone knows the damage caused by late payment of debts, but even this week's new legislation won't help small business unless it helps itself, says Peter Williams.
The late payment legislation finally came into force at the beginning of this month. From now on small businesses – those with less than 50 employees – can choose whether to charge large enterprises interest on bills that are paid late.
With small firms having six times the proportion of overdue debts as large firms, and with a quarter of all business failures in the European Union attributable to late payment, it would seem obvious that small firms should be rubbing their hands in glee at the chance to either be paid on time or be recompensed for the delay.
But this is not the case. According to a survey carried out last month by factoring firm Alex Lawrie, 48% of small firms said they would not enforce interest on overdue bills.
The problem for any small business is that they don’t want to snap at the hand that feeds them. Large corporates need only hint that they will dispose of those small suppliers who insist on enforcing their rights under the law to know that most will back off.
Legislation is always a blunt instrument, which is why the Better Practice Campaign – which is accompanying the introduction of the new law and is co-sponsored by Grant Thornton – is probably as important as the Act itself.
Small firms have got to feel that they have a right to be paid on time. And large corporates and public-sector organisations have to learn to understand that it is their civic duty to treat their small suppliers with as much consideration as their other stakeholders – shareholders, customers and employees.
Business attitude and culture can be changed. Look at the effect the principles of corporate governance has had on the quoted sector in the last few years. A similar dramatic change could also be achieved in the payment culture.
Accountants in all parts of commerce industry and practice can take a leading role in ending the abuse of trade credit facilities. Finance directors in large companies can make sure they pay their suppliers within the agreed time period; those working within smaller firms can ensure that their credit management policies are understood by customers and then enforced; while accountants in practice, from the Big Five to the sole practitioner, can take a positive stance explaining to clients the damage done to trade and competitiveness by late payment.
With the economic downturn already starting to impact on the cash flow and the credit facilities of smaller businesses, the time to act on eradicating late payment is now.
Peter Williams, chartered accountant, is editor of the newsletter Electronic Finance