- 18 Jun
Why Do Large Companies Pay Late?
I've just answered a question posed online about "why do large companies pay late?".
Firstly its worth mentioning that this does not apply to all large companies. We deal with numerous financial services companies who tend to pay very quickly.
There are a couple of key reasons for some large companies paying late, which are explained below. Despite there having been a tightening up on large companies, adding the right to receive interest on late payments and requiring them to publish average payment periods, the problem still persists. These are some of the reasons.
Cash Flow Benefit
The biggest reason for making late payments to your suppliers, is to benefit your own cash flow.
If you have a situation where you are paying your suppliers say £100,000 per month, paying on cash terms (immediately you purchase without taking any credit period), in month one you have to pay out £100,000 from your cash flow to settle these debts. In month 2 your pay out another £100,000 etc. Let's assume your monthly income covers that amount but that you don't get paid until month 2. In the first month you will have to finance those purchases e.g. with an overdraft of £100,000.
If instead you take 30 days credit from your suppliers i.e. you don't pay until 30 days have elapsed (let's assume thats a month to avoid the complicated maths!), in month 1 you have created an additional £100,000 within your business cash flow i.e. you don't need that £100K overdraft as you don't pay anything until, in the above example, your customers have paid their month 1 debts.
If you continue to take 30 day terms, this additional cash flow benefit will be retained within your business.
If you instead decided to take 60 days to pay (roughly 2 months), The benefit would accrue as follows. In month 1, you would not have to pay out the first £100,000 (i.e. no £100K overdraft). Then in month 2 you would not pay out a further £100,000 (meanwhile your customers continue to pay you, creating a credit balance). This would produce a c. £200,000 benefit to your business cash flow.
In the case of a large company, you only have to multiply up the numbers up to realise the significant benefit it can be for them to take extended periods of time to pay.
Indeed, in situations such as the collapse of Carillion, when their cash flow problems were at a peak, just before their collapse, they started taking 120 day terms from suppliers which would have significantly improved their own cash flow situation. Sadly, it was not sufficient to save the company, but this example helps to demonstrate the principle.
The second reason for taking a long time to pay your suppliers can be administrative reasons. If you are dealing with a large company, it is often not a simple case of the owner of the business deciding that invoices are due, and making a payment.
Often the payment process can involve numerous different departments – such as purchasing, payments or finance. There may also be numerous levels of approval required, depending upon the size of the expenditure. This could require several different people to look at a particular purchase and authorise it, all before the payment is made.
Errors & Not Following Their Process
Some large companies require you to adhere to their own payments process. If you make an error this can cause a delay. Some companies e.g. RBS have their own payments system that suppliers have to log into in order to get their payments released. If you don't follow the protocols for large companies, or provide the information required e.g. order numbers for example (in some cases), there may be delays.
It is important to understand your supplier's full payment process at the outset of the relationship.
If you are dealing with local authorities, administration can be one of the main problems when seeking to get paid. We have some advice in our article regarding Getting Paid By Local Authorities.
Further Help With Late Payments
What can you do about late payments?, often not much! These are a few options:
- Get your paperwork right e.g. invoices correctly raised with all the information they need, sent to the right person, with any approvals required.
- Understand their payment process in advance, and follow it meticulously.
- Operate an effective credit control system, or employ a professional outsourcing service.
- Charge interest on overdue debts.
If you would like more information about how to operate an effective credit control system, and about charging interest on overdue debts, we have a free credit control guide on our website.
If you are in need of assistance, either in terms of funding the gap between raising invoices and getting paid, or collecting in your invoices, we will be happy to assist you in finding a provider that can offer that service, at the best possible price.
- 13 Jun
Notes On Analysing A Company Balance Sheet.
Analysis of a company's balance sheet allows you to understand what assets and liabilities fall within the business, and whether the business is liquid (has enough liquid assets to pay its short term creditors as they fall due) and solvent i.e. assets exceed liabilities. Therefore it can be helpful in trying to establish the financial position of a company e.g. to decide on granting a credit...
- 07 Jun
How I Analyse A Profit And Loss Account
Analysing the profit and loss account (P & L) of a company can give you some idea of how well the business is trading. You should be able to see if its sales volume is growing, or decreasing. You should also be able to see whether it is profitable, or it is loss making.Growth or profitability provides no guarantee that you will be paid on time, or that the business even has the money to pay you....
- 06 Jun
How I Analyse Financial Accounts
Analysing the financial position of an individual or a person is not a straightforward thing to do, but having spent a number of years working within credit underwriting, I have dissected countless sets of financial accounts.Often the information that is available, even if you subscribe to credit information services, it can be fairly limited. In addition to financial accounts (which you can get...
- 05 Jun
A Warning About Invoice Fraud.
Avoiding invoice fraud is an important part of providing invoice finance and running any business. We were recently speaking to one of our funding partners who outlined a fraud methodology that is being currently being used. This method of boosting the credit worthiness of a company had been used in an attempted fraud against this particular funder.The fraudsters start by acquiring a company...
- 15 Apr
Help Raising Sales Invoices To Customers On Credit Terms
If you are looking for help raising sales invoice to your customers, on credit terms, we have pulled together a number of useful resources that will assist you.If you need the services of someone to do this for you, please get in touch and we will put you in contact with someone that can help.Accounting software packages tend to take all of the work our of raising your sales invoices, by doing...
- 22 Mar
Selective Invoice Finance With Free Auto Dunning
Selective invoice finance is a service that we are often asked about by prospect. There are a growing number of companies offering the service, and as I have mentioned in previous posts the operational approach and pricing can differ between providers.We have regular meetings with the providers, in order to keep up to date with the structure of their products, their pricing approach etc. We had...
- 15 Feb
Saving The Annual Salary Of A Credit Controller
According to figures published by Payscale, the average salary of a UK credit controller is now almost £21K per annum, with additional bonuses and commission averaging a further £6.5K, excluding employers national insurance, and any pension contributions you have to make (currently a minimum of 2% of earnings).DISCUSS OUTSOURCING OR FACTORINGAt the top end of the pay scale, the basic salaries...
- 18 Jan
Late Payment Problem?
Battling with a late payment problem? You might feel like you are all alone by recent research from Close Brothers Invoice Finance suggests that is not the case. It suggests that many other UK SMEs are being affected by slow payments, and this has been highlighted by several sources of independent research.Their poll found that 42.8% of SMEs say that late payments are a problem for their...
- 15 Jan
Solutions To Late Payments From Customers
Late payments are still causing cash flow problems for UK SMEs.An email just received from one of our new funding partners, My Muse, was headed "48% of SMEs impacted by late payments". It goes on to quote some recent Dun & Bradstreet research that has revealed that the average amount owed in late payments has increased by almost 25% over the last year to an average of over £80K. Within this...
- 14 Dec
Costs Of Collecting Late Payments Rising According To New Research
New research from Bacs Payment Schemes Ltd (Bacs) shows that the cost of collecting late payments, due to SMEs, has more than doubled to £6.7 billion (£2.6 billion in 2017).A huge 78% of SMEs are now forced to waiting 1 month or more, beyond their standard terms, to get paid by their customers. That is a huge amount of cash tied up in unpaid receivables.40% of SMEs affected by late payments say...
- 30 May
Collect Invoices Faster As An Alternative To Borrowing
There is a huge cash flow benefit to be acheived from collecting in your sales invoices faster, in a timely manner.The quicker you get paid by your customers, the more cash and hence working capital you will have available to your business, and therefore the less you will have to source e.g. by borrowing.If you have an outstanding sales ledger of £100,000, and a debt turn of say 60 days (the...
- 07 Apr
Do You Know The Standard Payment Terms Your Customers Can Take?
Did you know that the standard payment terms in the UK are 30 days from the date of your invoice?Many will not be aware that if you did not specify payment terms within the contract with your customer, there are default standard credit terms that will apply to your invoice. At the current time, those are payment within 30 days of the invoice date. You can check this for yourself on the government...
- 20 Feb
Chasing Invoices Via Social Media
I noticed an interest in chasing unpaid sales invoices via social media and I thought it would be good to add something about this to our existing comprehensive credit control guide.The first question is whether this is the right channel to use or not?I think the truth is that if you have resorted to using social media such as Twitter, Facebook, LinkedIn or Google+ to chase your invoices, you...
- 17 Nov
Need Help Chasing Invoices?
Do you need help chasing your unpaid sales invoices? Our focus is often on sourcing finance for our customers, but in some cases it is a credit control service that they need, and we have plenty of options available.We have a number of providers that can offer these types of services, and using them can both speed up your debt turn, get your invoices paid and remove the need to employ your own...
- 02 Aug
Credit Control Agency
One of the credit control agencies that we work with have been able to provide some first class credit control support to one of our clients, who needed help getting their unpaid invoices collected in. The agency took over the collection of the invoices from customers and they have improved the speed with with they are paid, reducing our client's debt turn. So they have a good track record of...