How exposed are your clients to the late payments disease?

June 15th, 2018

Accountants, like GPs, are busy people. Just like GPs, they spend so much time each day working on one client/patient before they have to turn their attention to the affairs of the next one. And just like GPs, each client/patient has a different need.

With GPs an older person who has fallen at home may be followed by a young couple pregnant for the first time or a middle-aged person coping with a long-term medical condition. With accountants, the small owner-trader’s corporation tax assessment is followed by another client’s year-end or advice to a growing company expanding into another market or a neighbouring town.

Just like doctors, busy accountants sometimes miss vulnerabilities in apparently healthy companies – and these vulnerabilities can have fatal consequences. One of those potential weaknesses was flagged up this week by Mike Cherry, Chairman of the Federation of Small Businesses (FSB) when he called on FTSE 100 firms to stop the late payments crisis.

Big business, he said, must do more to end late payments, poor payment practice and supply chain bullying that is damaging the UK economy. The FSB describes the impact these practices have on small firms as “hugely damaging” and has data showing that 84% of small firms report being paid late, with a third (33%) saying at least one in four payments they’re owed arrives later than agreed.

A similar proportion (37%) say that agreed payment terms have lengthened in the past two years, hampering cash flow. Only four per cent say payment terms are improving.

Mr Cherry, is basically asking these companies to work with small businesses to help foster a new payments culture in the UK. He points to the abysmal payments record of Carillion which placed pressure on its small business suppliers even before its eventual collapse.

“The poor payment practices that run rampant through UK supply chains is a national disgrace with the country falling behind almost all other industrialised nations in our ability to pay small businesses on time.  Carillion’s demise shone a light on the worst kind of payments practices but unfortunately it isn’t a one-off. Some big businesses use inequality of power in business relationships to squeeze small suppliers and delay payments to improve their own cashflow. This is bullying, pure and simple.”

“These practices are putting small businesses at risk forcing many to turn to personal credit cards or overdrafts just to survive. Sadly, we estimate late payments lead to 50,000 small businesses a year closing their doors, costing the economy £2.5 billion annually”.

Got that? 50,000 small businesses a year – most of which will be paying fees to their accountants for services and advice – are going bust.

It used to be that the upside of supplying a big-name company was that it would never go under owing you money, even if it did drag its feet when paying your invoices. That is no longer the case.

The message to my accountancy colleagues is that it is well worth running a late payments audit with your clients NOW rather than wait for an unexpected emergency. Because, just like the battered and bruised pensioner limping through the GPs door, a small company hit with a late payment can suddenly find the rug has been pulled from under its feet.

If you then find client suffering problems because of late payments by customers, call me and we can discuss what next steps could be taken to help…