late payment problems, invoice terms and factoring

As an established invoice finance broker, Factoring Finance Ltd have seen it all when it comes to cash flow problems and late payment issues for UK businesses and with economic recovery still so fragile, the figures released by BACS offer little surprise.

Late payment problems on the whole are still growing.

From the same period last year, the incidence of late payments, the value of debt / payments considered late and the duration of the overdue invoice settlement periods have all increased markedly. What may or may not surprise SME owners is that the main culprits are large corporate businesses.

As the figures currently stand there is some £24bn owed to the UK’s SME’s, with a third of all SME’s saying their corporate customers never pay on time and more than half (53%) of all UK SME’s having experienced late payment –  up from 45% in June 2010. Payments are now being delayed up to 52 days beyond the invoice terms, and on average every UK SME currently spends a ½ day each week chasing payment, which adds up to a staggering 158m lost man hours.

Why the increase?

Many are citing the increase in corporate late payments as being the product of the general economic downturn, continued low consumer confidence and poor cash flow amongst the large corporate businesses simply being passed on to the SME suppliers. Just as the bargaining power of supermarkets keeps profit margins squeezed amongst producers and suppliers to the supermarkets, any opportunity to retain cash may be taken and suppliers end up paying the price.

Risk of losing large Customers

Many SME’s turn to invoice finance products like factoring or invoice discounting to absorb the impact of late payments as to engage the services of a debt recovery firm may result in the loss of the large client. Whilst there are obvious downsides to having large corporate late payers, some SME’s simply take the lesser of two evils in that a late paying customer in some circumstances is better than no customer at all.

Are payment / invoice terms being ignored?

As the figures from BACS suggest, the large corporate businesses are on the face of it, using their status to either delay payments or change previously agreed payment terms. Dell famously wrote to its suppliers in 2010 telling them that it will be “standardising” its payment terms, from 50 to 65 days and blamed the change on “current economic conditions” and it wasn’t the only one in the Late payment Hall of Shame.

Brewing giant Molson Coors, which is behind beer brands such as Carling, Cobra and Grolsch, wrote to its suppliers informing them that, from September 2010, their invoices would not be processed until the Monday after the 90th day of receipt.

What is the answer?

60 or 90 days can be an eternity to wait for payment as during that time your business is effectively having its operational capabilities reduced until payment is received. You have already incurred all of the costs in delivering your product or service but have had none of the rewards. Moreover, you are also prevented from freeing up your business capacity to service other customers or contracts owing to the reduced spending power that poor or reduced cash flow produces.

Essentially this means that for how ever long your invoices are unpaid and the days widen from delivery to payment your business has its hands tied.

It stands to reason that an invoice finance broker such as ourselves would obviously recommend SME’s consider the use of invoice finance services such as factoring or invoice discounting, and perhaps other forms of asset finance such as inventory finance to unlock the cash tied up in outstanding invoices and unused stock or inventory.

Where Factoring Finance differs from many brokers is that we are not tied to any one provider and being independent means we can source not just the best individual deal terms for your business, but the best provider for your industry with our access to sector specialists who understand the complexities of your specific sector and can tailor their package to your needs.

Mike Hutchinson, head of marketing at Bacs, said: “Late payment remains a big problem for British SMEs with £billions overdue against bills, causing small businesses to use up millions of man hours in chasing invoice payment. Cash flow is an essential business priority, particularly in a period of economic uncertainty,”

If you have some questions on invoice finance or some concern about late payment problems simply get in touch for more details or a no obligation discussion. You can use the Online Enquiry Form on our contact page, the ‘Am I eligible’ tool in the top right hand corner of the same page or call 0151 632 0877 at your convenience.


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