Late payment is a major problem for a lot of small businesses, resulting in increased costs, reduced capital spending and supplies going out of business. Survey findings published by UK energy supplier Npower showed that despite 57% of businesses putting in place strict payment terms, may still feel that not enough pressure is being placed on customers to pay on time. The gradual creep of payment terms from 30 days to well over 100 days in some cases can have a disastrous effect on a small firm’s ability to operate.
Addressing late payment is a complex challenge, not least because it encompasses trade credit – when payment is not made at the time when goods or services are delivered, but at a later date. In general, SME’s around the world receive more short-term credit from suppliers than from banks and companies use trade credit to finance and manage expansion. At least 30% of all credit-based sales in developed and emerging markets are paid outside the agreed terms, while 16%-21% are paid more than 60 days after the invoice date – the maximum allowed terms of credit in the EU without an explicit agreement.
Suppliers are not helpless in the face of late payment. They can protect themselves by investing in customer relationships and a well-resourced credit control function, conducting careful due diligence and designing contacts with clear terms of credit.
So whether you’re a customer on the receiving end of late payments or a supplier trying to squeeze those extra days to delay payment until absolutely necessary, one thing is clear, credit management is an uncomfortable situation that we all have to face and conquer! 🙂
Source: Accounting and Business magazine UK 05/2015 by Sarah Perrin