SMEs face many challenges and uppermost among them is chasing:
chasing orders and chasing payment. According to research by law
firm Lovetts, chasing payments in Q4 2011 was a bigger priority for
SMEs than it was a year ago. Today, in an attempt to improve their
cash flow, firms are using a Letter-Before-Action after 91 days
instead of 97 days. Lovetts chairman Charles Wilson says: "There's
definitely a feeling of businesses battening down the hatches to
ride out the economic storm."
Graydon's own Q4 research found that 51% of businesses
experienced an increase in late payments, so it's no wonder that
creditors are chasing harder and faster. What is causing the
payment delay and what help can SMEs get?
Legislation can help. Indeed, our research also revealed that
76% of respondents thought the government should do more to protect
them against late payment. Judging from past legislation, such as
the Late Payment of Commercial Debts Act, they have a point. This
Act saw suppliers coerced by big business into accepting longer
payment terms against their will, and 56% of our respondents fell
foul of this deception.
Prevention can help. Regular credit checks can prevent
protracted default but all too often they're reserved for checking
out new buyers. Monitoring existing buyers is equally vital because
their circumstances can change in a heartbeat. SMEs must also
understand how important their own credit rating is too. With
access to finance so difficult for SMEs, a strong credit rating
will provide a valuable source of reference.
Debt collection agencies (DCAs) and solicitors can help. DCAs
will typically charge 5%-10% commission to
collect a commercial UK debt and they'll do so on a "no collection:
no commission" basis and many solicitors offer
Letters-Before-Action at a low fixed cost. Both these third-party
solutions provide the escalation element of a collection strategy,
and they free the SME to chase orders instead of overdue
accounts.
All of this help will go a long way to alleviate the negative
impact of late payments. And that's great news for the 45% of our
respondents who claim late payments will inhibit their ability to
invest in people and services. Help is available to SMEs. And with
it they could find poetic justice.
