Every business, regardless of position in the supply or service chain has a different way of working, a different set of customers and different priorities. All of them, however, are at the mercy of accounting. There are numerous reports of big businesses behaving badly when it comes to late payments. In fact, there’s more than one online forum dedicated to naming and shaming big businesses acting as a ‘hall of shame’ for poor payment practice.
This is worrying for SMBs and particularly startups. It’s not uncommon for a fledgling company to suddenly find itself involved with a big business, recruiting more staff to execute the work, and then struggling to cover the payroll when left waiting months for an invoice to be paid due to sheer bureaucracy, extended or missed payment terms.
Research from the Institute of Directors last year found that two-thirds of the UK’s small and medium-sized companies received late payments from the businesses they supplied. Fortunately, there is an advisory board that has been set up in the UK to enforce a Prompt Payment Code. The aims of this code include:
- introducing a 60-day maximum payment term, and enshrining a 30-day payment term as a norm for all signatories as standard practice
- creating a Code of Compliance board to enforce the Code, including its maximum payment term
- requiring small- and medium-sized signatories to report annually on their payment performance, on a comply or explain basis, and for large signatories to report on their payment practice and performance in line with the new statutory reporting requirement
- increasing the number of references needed to validate membership
- promoting and strengthening the Prompt Payment Code website
Supported by the likes of Barclays, RBS and HSBC, this is a step in the right direction, and something SMBs across the UK can get behind. Remember, it’s always a good idea to define your payment terms before you start doing business with a supplier or customer. If you can’t work with a 30-day payment term, consider shortening your invoice payment period to encourage your customers to pay sooner. If you make your best efforts to supply your products and services to your clients’ deadlines, there’s no reason why they shouldn’t follow suit.
Let’s beat late invoice payments together. Visit chasingpayments.com to find out more.