How to protect cashflow with one payment policy change: invoice recovery
This article was originally published on 15 March 2023.
It has since been updated to include more recent statistics (references 1 and 6) April 2023 and reference the Department for Business and Trade (DBT), one of three departments to replaced the Department for Business, Energy & Industrial Strategy earlier this year.
In this article Matthew Brady, solicitor in our Dispute Resolution team and debt recovery expert explains how adding invoice recovery to a payment policy can protect cashflow for businesses of any size.
Can late payments be avoided?
Not all businesses pay promptly, despite the best efforts by the Department for Business and Trade.
Under Small Business Commissioner Liz Barclay's watch, businesses can voluntarily commit to good payment practices under the Prompt Payment Code. The code was created in an effort to change payment culture for the better.
Signatories of the code agree to pay suppliers on time within agreed terms; give clear guidance to suppliers on terms, engage in dispute resolution and prompt notification of late payment; and support good practice throughout their supply chain by encouraging the adoption of the code.
In an ideal world, we’d only do business with others committed to paying in full, on time. But it's not always possible to avoid late payment – so what’s the risk posed by late payment, and is a bespoke payment policy the answer?
What happens to businesses when payments are late?
A recent report by the Federation of Small Businesses(1) (FSB) found that 52% of small businesses are experiencing late payment delays. This, in turn, affects business operations and cashflow; the same report found that 37% of small businesses applied for credit to improve cashflow.
When a client doesn’t pay on time, resources are often diverted in the first instance to recovering the payment, with time, money and output allocated to chasing unpaid invoices. This then puts productivity at risk.
For small businesses, more than a week each year is spent pursuing money owed – that translates to 56.4 million hours, worth £6.3bn to the economy according to research by Intuit(2).
What is the trickle-down effect of a late payment?
A survey of UK business decision makers(3) found that a single late payment can cause a domino effect across the entire payment flow and ultimately the economy: 86% agreed a late payment affects everyone in the supply chain; more than a third (35%) said late payments make them consider raising prices; and a quarter (26%) would consider postponing hiring plans.
In the worst cases, late payments can lead to insolvency. An R3 survey in 2016(4) found that late payment was a major cause of 23% of insolvencies that year, and another in 2018(5) revealed the knock-on effect: 26% of UK companies’ finances suffered following a customer’s insolvency.
In the 2023 economy, not much has changed. This June, The Insolvency Service(6) reported 2,163 registered company insolvencies – 27% higher than June 2022. This figure is both higher than pre-pandemic figures but also during the pandemic.
If late payments are a threat to success, what’s the solution?
How making invoice recovery part of your policy can protect cashflow
Late payments are detrimental to the health of your business. Our advice is therefore always to try and take back control with a prompt payment policy. If invoice recovery is a part of your process, we find that debtor days are reduced. It’s then easier to manage client expectations from the outset and pass late payment concerns to your debt recovery solution team, saving your business time and money, and circumventing difficult conversations.
Third-party legal expertise can make recovering late payments fast, efficient, and most importantly compliant. The right legal team is able to quickly assess outstanding invoices, make recommendations and help you apply compensation, late fees and interest to the debt (where applicable). They’ll seek recovery of your outstanding debts without the heavy-handed approach that risks damaging important client relationships – a key concern for any business chasing payment.
What is Muckle Collect?
Muckle Collect is a debt recovery solution suitable for businesses of any size, delivered by legal experts. Users can upload and track debts in real-time with a unique invoice management portal making invoice management quick and easy so you can get back to doing what counts.
Our team has been recovering debts for 30 years and has ranked top tier in the Legal 500 UK directory for the last ten. Respect for client relationships is of the utmost importance; we’re known for our personable approach to negotiating successful settlements and for giving pragmatic, strategic advice to anyone who deals with debts,from sole traders to PLCs.
Whether you’re calling in a single debt or hundreds, lean on Muckle Collect to make your prompt payment policy work for you.
For further advice or more information about Muckle Collect and invoice recovery, please contact Matthew Brady on [email protected] or 0191 211 7838.
References:
1) FSB
2) Intuit
3) GoCardless
4) R3
5) R3