The Federation of Small Businesses (FSB) estimates more than £14bn is being withheld from smaller firms due to late payment. It is unsurprising, then, that most observers agree that action to address this matter is sorely needed.
Exactly what might happen next remains uncertain but Ian Cass, managing director of the Forum of Private Business (FPB), anticipates things will become clearer this autumn.
“I am convinced we will see something of this in the Budget, but what that something is remains to be seen,” he says, adding that he would like the government to make 30-day payment terms standard in law.
“You wouldn’t have to regulate it and it would be very clear. Some countries have it in law but in others it’s [common practice because of] the culture and the thought of making somebody wait 120 days to pay an invoice when the work or a service has already been provided.”
Late payment most greatly affects SMEs, who are typically at the end of the supply chain, have smaller margins, and whose cashflow can often be tight. The FSB estimates late payment destroys 50,000 small businesses a year.
On top of the usual issues faced by SMEs, printers also face the industry’s own unique challenges, with many companies feeling under pressure to take any work they are offered to keep their presses running, regardless of the potential payment problems they might run into.
“The worst scenario is when a printer chases a customer for payment and the customer says ‘I’ll look into that, but in the meantime can you quote for this job?’. And then the printer forgets that they’re trying to get money because they’re anxious to get the next task,” says Sidney Bobb, chairman of the British Association for Print & Communication (BAPC).
Short of asking customers to pay for the materials required for a job upfront, printers will often need to pay for ink, paper and postage out of their own pocket before receiving payment. And if payment isn’t then made, the job cannot usually be reused elsewhere due to the bespoke nature of printed products, meaning time and money is wasted.
“Late payment is a perennial problem for the print industry which traditionally has had an element of ‘my word is my bond’ approach to its customers, with personal assurances counting for much as ‘in the good old days’,” says Ian Carrotte, chief executive at credit specialist ICSM.
“The problem is when things get tight financially that personal assurances are quickly abandoned. We frequently hear of suppliers refusing to chase up late payments for various reasons that include ‘not upsetting a good customer’ in the blind belief the customer will always pay, forgetting that a good customer is a customer who pays on time.
“The consequence is the print firm may be running up a huge overdraft or are unable to pay their own debts because the money they have earned is sitting in their client’s bank account, not theirs.”
Small firms suffer
Late payment can often cause particular headaches for SMEs that rely on few, larger contracts – often with big name businesses – rather than many, smaller jobs.
“Companies become seduced by big names such as the Carillions of this world and allow them too much credit,” says Carrotte.
“Under EU law, firms can charge interest on overdue balances but often they will not enforce the extra payment to their customer once the main invoice has been settled for fear of ‘upsetting’ the customer or the fear of additional cost in recovering these statutory charges which legally are owed by the customer.”
Bobb points out it’s not always easy to spread risk among multiple clients. “When you’re at the coalface it’s very difficult to do – if somebody offers you a nice job you’ll take it invariably, and if that’s 50% of your turnover you’ll still take it because you want the business.”
He adds late payment can hinder printers in other ways as well. “It prevents some companies from taking on perhaps more ambitious tasks because their funds are at risk.”
Various measures have been introduced by the government over the last few years to help tackle late payment, including the Prompt Payment Code and the Duty to Report legislation. It also appointed its first small business commissioner, Paul Uppal, last year.
“The Prompt Payment Code should be compulsory for FTSE 350 firms and given some real teeth,” says FSB national chairman Mike Cherry.
“We welcome the appointment of the first small business commissioner, as well as the chancellor’s promise to tackle the late payment crisis head on. It’s now time to turn good intentions into meaningful action.”
But what can SMEs do in the meantime? Printers can help to safeguard themselves by running credit checks on new customers and getting trade references.
Companies with a web-to-print offering, meanwhile, have the additional advantage of being able to take payment upfront through their online storefront.
Cherry says small firms should “make every effort to agree payment terms they’re comfortable with before contracts are signed”.
While Cass encourages businesses to treat their invoicing as a form of sales or marketing. “Don’t just ring up a supplier when you’ve got a problem, be proactive in your relationship with them.”
He concludes: “And when you’ve got a contract with somebody new, ring them up and introduce yourself. Ask if there’s anything you can do to help, if there’s a particular time it helps to have the invoice in that makes it easier to pay, or if there’s a way you can format your invoices to help speed the payment.”
A long-standing problem that printers must reject
Charles Jarrold, chief executive, BPIF
The UK has a long-established problem with extended payment terms and late payment. Too often, it’s seen as good business practice and this needs to change. Extended payment terms and late payment are two different but related issues – arguably extended payment terms is the lesser of two evils, assuming that the payment is settled on schedule, but both create problems. Delayed payment, for whatever reasons, increases the credit risk – with a greater debt outstanding for longer and impacting on cashflow.
For the sector, late payment continues to be a concern – our most recent research indicates that 27% of respondents reported an increase in the incidence of late payment in 2017. Almost half of respondents reported that they had been obliged to accept longer payment terms to retain or secure business, with terms regularly up to 90 days, and, absurdly, some up to 120 days. This represents a business culture that the UK could do without.
To reduce the impact and risk, printers should ensure that they have clear processes in place: perform credit checks, look up financial information, get trade references. If a credit insurer hesitates to provide cover, be wary. Consider getting ‘directors guarantees’ as this focuses minds, and if buying paper on behalf of a client, get that paid upfront. Don’t let the problem grow by doing new work while overdue debts remain unpaid.
In terms of changing the environment, the 2015 Prompt Payment Code is a small step in the right direction. BPIF members have identified prompt payment as a top concern, so we’re asking the government to help by: making all public agencies pay SME invoices within 30 days; public sector contractors should pay sub-contractors within the same period as the main contractor; suppliers to the public sector should sign up to the Prompt Payment Code. We are also lobbying the recently appointed small business commissioner to tackle the late payment culture as a priority.
How do you deal wit h instances of late payment?
Ian Paull, director, Knockout Print
“Late payment puts a big strain on things; you have to forever chase people and it slows everything down. I credit check all new customers and tend to offer terms on that basis. If it’s somebody I know then I’m a bit more relaxed about it, but if it’s new business I tend to want to get payment upfront for the first order. We’ve got lots of customers who all tend to do smaller orders with us, so we’re not in a situation where we have one big customer that we’re reliant on.”
Joanne Hodges, director, Blackwell Print
“Late payments aren’t a huge issue for us. We invoice finance the majority of our credit accounts, which helps aid with cashflow. We also have an online presence through Advantage Media where payment is made upfront. We work very closely with many of our credit account customers and have built excellent relationships with them, which I think helps the account not go over payment terms where possible.”
Tony Bates, managing director, Fast Graphics
“We are very hot on checking people out. We use Experian, which gives us alerts on a daily basis, and it’s also about keeping your ear to the ground. We find some of the issues in terms of late payment are simply due to poor admin, where the staff at some companies are a bit lackadaisical. Our financial director does a lot of good work on this and she tends to find that by making very good links in the accounts departments, if you can get one human being in there, they will be on it.”