SMEs are the fulcrum of a growth economy, having the ability to adapt to change, create jobs and fill supply chain gaps quickly and resourcefully.

All this makes the delay to the measures announced by the UK government in March 2015, that larger companies would be compelled to disclose their payment terms, so disappointing.

These measures would lay bare the time that large companies take to pay suppliers, giving clear information on the average time taken by each of them to pay their suppliers: those paying within 30 days; those between 31 and 60 days; and those between 61 to 90 days. It would also show the proportion of invoices paid beyond agreed terms, and any late interest payments owed and paid.

The government has excused the delay by pointing out previous government IT foul-ups, saying it wants to get this right rather than rush into it. That’s fair enough – nobody wants to see this bungled.

Anna Soubry, minister for Small Business, has said that the reporting requirement will be enforced from October 2016. If the present government is to be taken seriously as one that is genuinely supportive of small businesses, this has to happen.

Late payments are a clear and present danger to small businesses. A survey of 1,000 companies carried out by Tungsten Network in August 2015 showed that nearly a quarter of all SMEs had been put at risk of closure due to late payments.

The average SME was owed £40,587, with £20,937 of that being late. Across the UK’s 5.2m SMEs, the total owed could be as much as £212bn.

In some cases, even a single late payment can have crippling consequences for a small business, and it’s all so needless. In the modern era, there are various different ways of improving invoicing, payment and accounting systems so that transactions are completed on time and to everybody’s satisfaction.

Read more on late payments:

• Unblocking SMEs’ financial arteries
• UK suffers from late payment “epidemic” as most firms neglect suppliers
• How late payments became the driving force behind CreditHQ – and plans for global expansion

Therefore, there should be no excuse for late payments as a result of glitches, inefficient systems or human error.

To an extent, small businesses can help themselves. There are alternative arrangements out there. Most people will have heard of invoice discounting – this is an area that has moved with the times to become a fast, flexible way to ensure your company doesn’t run short of cash due to late payers. 

Products can arrive as a service that facilitates payment on approved invoices, allowing firms to take control of their working capital in a flexible (customers opt to use it on just the invoices of their choice) and price-competitive way.

Also, automation in payment solutions driven by e-invoicing has proven viable and beneficial to the trading relationships between suppliers and their customers. The need for paper invoices is disappearing as more and more businesses recognise the efficiency gains of going digital.

The uptake of electronic invoicing is gaining momentum, with the latest figures from the European E-invoicing Service Providers Association (EESPA) showing that some 986 million electronic invoices were processed in 2014 – a year-on-year increase of 17 per cent. That trend has continued.

So there are ways companies can protect themselves. There are also industry-led efforts, such as the Prompt Payment Code. Administered by the Chartered Institute for Credit Management, this sets standards for payment practices, and becoming a signatory is something forward-thinking companies realise reflects positively on them.

Another initiative is Please Abide Contract Terms (PACT), a business set up by entrepreneur Chris Hawthorn, where businesses pay a subscription for a range of services including: access to a register of known late payers; automated emails sent to debtors; and the ability to inform credit agencies of payment defaults.

Progress is being made, but late payment is still a huge problem for many SMEs. They need help and they need it quickly. That’s why the government clampdown really must start to happen this year. The clock is ticking.

These are the five ways to avoid late payments from larger buyers.

Henning Holter is head of global business development at Tungsten Network Finance

Image: Shutterstock

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