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The Domino Effect from late payments


The domino effect

Late payments domino effectRecent figures released indicate that over a fifth of UK corporate insolvencies in the past year were caused by late payment or the ‘domino effect’ of another business becoming insolvent.

Of 23% of insolvencies in the last twelve months the primary cause of failure was reported to be late payment for goods. In 20% of cases it was the failure of a supplier or customer which was to blame for the company’s demise.

Not surprisingly in over half of insolvency cases, practitioners surveyed last year identified the construction industry with the worst track record for late payment, in line with findings from a previous survey in 2014.

The late payment attitude within this sector is particularly debilitating as it affects contractors’ ability to buy supplies which has a serious knock-on effect for their business, delaying projects and damaging customer relationships.

It’s an expensive pastime

The research into late payment shows that SMEs are incurring a collective £10.8 billion a year in their attempts to recover overdue payments — that’s an average of almost £11,500 each.  That compares with a total cost of £8.2 billion in July 2014.

In addition, four-fifths of those are being kept waiting one month or longer beyond agreed terms before receiving payment. About a quarter of these company’s admit that late payments forced them to rely on bank overdrafts and a similar number said that late payment has resulted in them paying their own suppliers late.

Safeguards

So what do business owners need to do? The basics are a good place to start. Being familiar with your clients’ payment processes, while using the right purchase order numbers in all correspondence will put you in good stead. A customer may look for any excuse to delay a payment so the best advice is not to give them any.

Cashflow forecasting is another must. Being on top of what money is coming in and what is going out will enable you to spot a late payment as soon as it occurs. Being able to promptly chase up a delayed invoice, there and then, is better than noticing it too late.

Firms are being selective about who they will work with, based on the customer’s previous payment performance. By taking a firm stand in this way, it sends a clear message that late payment won’t be tolerated.

Yet even with the world’s smoothest accounting procedures, a late payment can often be unavoidable. For ambitious businesses that do not want to be held back by arbitrary cash flow difficulties, or want the flexibility to deal with any short term spikes in late payments, lending options such as invoice finance of a short term business loan can provide that cash flow boost.

Stewart Goldsmith By Google+ |
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