Look a gift horse in the mouth, firms told

Large companies not paying their independent suppliers on time is a growing problem, according to the UK’s leading chartered accountancy body.

Delivering this verdict, Clive Lewis, of the ICAEW, said UK plcs are making its smaller suppliers pay for the pressure they continue to feel from the credit crunch.

Yet research released at the end of last month shows small firms feel that individuals and other micro firms are actually worse at paying on time than large corporates.

Of the businesses tracked by BACS Payment Services, 34% identified big businesses as the worst offenders, compared with 44% who laid the blame on one-person firms.

In line with recent reports from the BCC that some parts of the UK remain unaffected by any slowdown, firms in the North emerged as unscathed from late payment issues.

Almost regardless of the size of the debtor, Mr Lewis issued some golden rules for suppliers to ensure their cash flow is less prone to contractions thanks to late payers.

  1. Know your customer and make sure they are able to pay their bills by getting a credit check on them. This might seem like looking a gift horse in the mouth but a debtor becoming insolvent owing you two to three months’ work will create a big hole in you finances for something which costs £20 or so.

  2. Agree payment terms before you supply. If they intend taking 60 or 90 days to pay you should find out before starting the contract and make a positive decision to take the work or not and figure out how you will manage until the debt is paid.

  3. Invoice accurately clearly and promptly. Make sure you know to whom and where to send invoices and what detail they must contain. Raise invoices as soon as the work is completed and don’t wait until the end of the month. This can result in the customer processing somebody else’s invoices in front of yours.

  4. Don’t be afraid to ask for payment. Telephone shortly after you send your invoice and progress the invoice through the customer’s invoice payment system noting who you speak to and what is said in conversations. Monitor payment performance closely and complain if promises are not kept.

  5. Discounts for prompt payment can be worthwhile depending on your need for the payment. The danger is payments slip and they still take the discount, meaning that it is effectively a price reduction.

  6. Factoring and invoice discounting can help finance increasing sales. Customers must be creditworthy and you must be prepared for the additional checks and procedures which come with this sort of finance. On the plus side you are likely to get more finance than from a conventional bank loan or overdraft.

 

8th September 2008

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