Financial stabilityJust because a brand is bigger doesn’t necessarily make it more stable, so investigate the reasons why it might be asking for longer payment terms. Is it a simple bid to better manage cash flow, or is your partner’s business struggling to make ends meet? Often, simple credit scores and payment indicators are enough to reveal which invoices are at risk of not being addressed and increasingly, are free to access, at least in a basic form. For example, in October 2014, CreditHQ identified that the level of risk in trading with City Link had increased noticeably and warned users of the service that even if the company was paying its bills and operating at present, trouble may be in the wind. Those who took note and action were then better prepared than their competitors when City Link then went into administration over the Christmas holidays. It’s unusual for established household names to experience sudden failures – Diageo and AB InBev both have perfect credit scores – but as the string of names disappearing from the high street in recent years reminds us, it does happen, and the impact can be significant.
Cash flowWhether you’re a tiny start-up or a multinational corporation, cash flow forecasts are essential in helping businesses keep track of their finances and staying afloat. However, many small businesses experience problems after they sign seemingly profitable deals due to over-optimism leaving them short on available funds – such as assuming that customers will pay you on time, when in reality, many companies don’t. Read more about late payment:
- Report late payment data in annual accounts, says CBI
- We need to combat “entrenched late payment culture”
Charging interest and chasing overdue debtOnce an invoice becomes overdue, it’s worth remembering that you are perfectly entitled to charge interest on the amount owing – and should feel free to exercise this right. This could either be at a rate of your choice included in your payment terms, or it could be at the statutory rate of interest, which is eight per cent plus the Bank of England base rate for B2B transactions. It might seem like a bit of a daunting prospect when going up against a larger brand, but it’s ultimately your money that they’re stopping you accessing that could be invested to obtain further work or pay salaries or even your own creditors. The government has assured small businesses that it will be introducing legislation later this year to ‘name and shame’ large firms demanding lengthy payment terms in a bid to make the payment process more transparent and enable SMEs to hold their partners to account. But changing the culture for good will take some time, so until then, ensure you don’t simply accept terms that could potentially jeopardise your finances. Isn’t it better to fight today than disappear without so much as a whimper tomorrow? Martin Campbell is MD at Ormsby Street.
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