By Daniel Hunter
Late payment remains an issue for small businesses as they struggle to stay afloat in the UK’s unpredictable economy.
Encouragingly, however, Hilton-Baird Collection Services has found that while the UK’s SMEs are still feeling the pinch, they are adopting a back to basics approach to credit control in a bid to ease the pressures of late payment.
The research, which surveyed 247 business owners during January 2012, found SMEs are taking a more proactive stance in order to stay on top of their credit management and reduce the likelihood of late payment.
Set against a backdrop of the challenging economic climate, there has been a significant rise in the use of constant reminding (69%), suspending work and services (47%) and writing to debtors (45%). Other popular credit management strategies include credit insurance (15%), while almost half (47%) are credit checking new customers.
As a result of this back to basics approach, the payment performance of UK businesses improved during the second half of 2011. Businesses are now waiting an average of 17 days beyond their agreed credit terms to be paid by their customers, which is a full five days sooner than in the preceding six months to July 2011. There was also an encouraging fall in the age of respondents’ debtor books, with 66% now classifying less than 10% as more than 90 days old, up from 57% in July.
Although alternative options are available, the situation has been antagonised by the winding down of HM Revenue & Customs’ Time To Pay scheme. Worryingly, only 69% of the one in five applying to defer the repayment of their tax arrears in the second half of 2011 had their applications accepted. This clearly indicates the importance for businesses to be wary as to who they supply goods and services to in the months ahead, particularly given the uncertain economic prospects.
Despite the evidence that some businesses are tackling payment issues head on, there still remain a number of worrying trends. The latest research shows that only 18% of all firms reported no delay in payment in the last six months, though only one in four said they would consider charging interest on late payment in the next six months.
“We are pleased that payment performance is improving," Alex Hilton-Baird, Managing Director of Hilton-Baird Collection Services, commented.
"However, late payment is still hotly debated and it is no secret how much it has affected the financial health of UK businesses. It is therefore encouraging to see that the majority are employing a range of different credit management strategies in order to clamp down on late paying customers, something I hope will continue.
“Firms are taking a step in the right direction by utilising the options at their disposal, with 5% now outsourcing their credit control functions in full, which is up from just 1% six months ago.
"This can be a hugely beneficial resource as specialist debt collection agencies can assume the responsibility of chasing customers for payment. While late payment remains a major issue, businesses should do all they can to stay on top of credit management and safeguard their cash flows against its impacts.”
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