article
Master bakers
13 November 2008
We are in a recession with forecasts being made that there is
worse to come. We now have government proposals to assist small
businesses both through encouraging banks to continue lending to
small businesses but also by promising to bring down the length of
time it takes public bodies to pay invoices.
Cash flow difficulties cause all kinds of headaches for
businesses, particularly in this economic climate. The second
quarter of 2008 saw 3560 compulsory liquidations - up 11.6% on the
previous three month period.
One of the major problems can be the length of time it takes
companies to pay invoices. The website www.paymentscorer.com sets
out the best payers but also the worst offenders. Whilst most of
the worst payers tend to be in the construction and energy
industries there are some in the food and entertainment sphere. For
instance it is reported that Premier Foods PLC take on average 70
days to pay invoices and Greene King PLC take 68 days.
So what can businesses do to help alleviate the situation?
Terms and conditions of business
Check your terms and conditions of business. Are they up to
date? Do they adequately protect your business? Are terms and
conditions in place for each and every customer of your business?
In particular check the payment terms. Do these suit the financial
situation of your company? Consider having a corporate healthcheck
to make sure all the basics are in place.
Decide what credit you are going to give each customer
Consider carrying out credit checks on your potential customers,
particularly those who will be placing large orders.
Invoicing
Consider e-invoicing. It’s quicker and there is less likelihood
of the invoices going astray. Make sure that invoices are correct
before sending them out. Sounds basic but in recent research PWC
found that 85% of the reasons given for non payment of an invoice
related to it inaccurate, for instance the invoice being sent to
the wrong place or the invoice being for an incorrect amount. Also
get to know your customer. Does your customer have a set day or
days in the month when invoices are paid? Invoices should be sent
shortly before the payment days to ensure that payment is made
promptly and you are not left with a further month before payment
is received.
Chasing payment
Have strict procedures in place for chasing debts. The longer an
invoice is unpaid the harder it becomes to collect. Therefore if
payment is due after a month, ensure someone is chasing the bill
the moment it becomes overdue. More likely than not the reason for
non-payment is an oversight – if there was a problem with the
service or product rendered then in most instances a complaint
would have been raised straight away. A company’s bad paying habits
may need to be ironed out so credit control meetings may need to be
set up, payment terms changed for future contracts or a change to
the credit given.
Debt collection
Most businesses do not have the time and resources to deal with
debt collection when it becomes clear that the third party is not
going to pay the invoice and the matter looks as if it will lead to
litigation. Think about sub contracting the work out to a
specialist debt collection service. Most of these services are
competitively priced and are dealt with on a fixed fee basis so one
knows exactly what the costs are going to be. In addition be aware
that it may be possible to claim extra interest pursuant to a 1999
Act of Parliament.
In conclusion, take control of the situation, make sure that the
correct contracts are in place and that debts are pursued in a
timely way.
save to PDF