Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

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Tuesday, May 12, 2009

More thoughts on late payments

Reading a number of press items over recent weeks it seems that the problem of late payments is rearing it's ugly head again.

I posted an entry a short while ago about the new Prompt Payment Code ...and what a nonsense it is. That aside it seems smaller businesses are beginning to suffer in the hands of larger customers.

Recently UK retailer Argos was reported to have unilaterally doubled the time it takes to pay it's suppliers from 30 days to 60 days and in addition to deduct a 4% settlement discount. For a retailer this must be nothing short of obscene as they will not be giving any credit will they! So why are they making their small suppliers suffer other than to improve their own cash flow. It really is appalling.

Having a long standing client who supplies the major food retailers we have seen who is funding their growth in recent years by the increasing terms they are unilaterally taking. Fortunately our client has the ability to withstand it, but many won't.

Research from HSBC suggested that smaller businesses are being forced to wait up to six weeks after the agreed payment date to receive their cash! Payments owed had risen 40% in a year, and 64% of business are saying that managing cash flow is their biggest challenge. Tenon Recovery said that 3 out of 5 of UK business were struggling with cash flow issues because of late receipts from their customers.

If you are dealing with the big boys then there is often little you can do about having terms imposed upon you. It is a case of take it or leave it. However, in our experience you do need to make sure you have an extremely efficient credit control process. The trick appears to be when dealing with the bigger companies is to have a really intimate knowledge of their systems and then follow what they want to the letter. If that means that certain codes or numbers need to be quoted on your invoices then make sure it happens without fail, if it means certain supporting paperwork needs to go with the invoice (like a delivery slip or the like) then ensure it always happens. In most cases it is a waste of time sending the invoice if you are not getting it right.

Then make sure that you have someone who is clearly responsible for building relationships with the accounts payable people at the customer, and that they are in constant touch and ensuring invoices will be paid on time before the payment date comes around. This proactive approach will undoubtedly pay dividends.

I do sometimes wonder how many of the statistics about the delays by the large companies mentioned above is due to the system not being played right. However, there is no doubt at all that they are abusing their position and strength.

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