September 30 2014 Latest news:
Saturday, June 23, 2012
Already hard-pressed small businesses in Norfolk and Suffolk are increasingly struggling to cope with companies delaying payment.
An investigation by the EDP has found many businesses in the region are wasting time and resources chasing payment for goods and services – putting firms under yet more pressure.
About 78pc of businesses which responded to an EDP survey through the local branches of the Federation of Small Businesses (FSB) said late payments had been a problem for them.
The firms represent a cross section of different business sectors, from engineering to retailing, and the findings follow a national FSB survey last year which found that more than 70pc of small businesses had experienced late payment in the previous 12 months: two thirds had to write off their invoices, with 20pc saying they lost £5,000 or more.
Chasing payment is not a new problem for the SME sector. The government attempted to tackle the issue in 1998 with legislation which allowed companies to claim interest for late payments first from large companies (those with more than 50 employees) and then small companies in 2000.
But this has had little impact. Businesses have said requests for interest have been ignored and many small enterprises which desperately need the custom are reluctant to pursue companies because they are afraid of losing the client.
Kiffy Stainer-Hutchins, director of KSH&Co Ltd, based at Houghton, near Fakenham, which restores fine paintings and associated works, said she was exasperated by the situation and said larger firms were mostly to blame.
“The government is pushing bank loans and trying to make more money available for bank loans but the last thing we want is more debt,” she said. “We want people to pay on time. It is never the small people, they always pay on time. It is always the big operations who need somebody specialist.”
She said the firm sometimes has to wait at least 60 days.
“We have to chase and chase and chase them and then it can get very unpleasant.
“The one small thing the government could do is make big businesses pay on time. That one small thing would make a huge difference.”
She added that they had sent clients late payment interest invoices.
“It is impossible. You never get it back. They forget the invoices that have late payments on them.
“They are not worth chasing because they are not a big enough hammer to hit them with.”
For a small business late payment can have a massive impact on a firm.
Sam Wright, owner of Norwich-based Blink SEO, has also had first-hand experience of late payment.
He said: “When I started out a few years ago, I only had a handful of clients, so any delay had a real impact on my budgeting.
“It can be quite easy to get stuck in a cycle of sinking to the bottom of your overdraft and getting hit by charges just because a payment is a few weeks late. Chasing payments is not much fun either – it’s time consuming and sometimes pretty stressful.
“Since the downturn started too, there seems to have been an expectation that you’ll accept longer payment deadlines, from say 15 days to up to 30. I know there’s a bit of a knock-on affect with things like this, but it all adds extra pressure that I think can be avoided.
But unlike most of those surveyed, he said however that it was his larger firms who tended to be quicker in settling up. He said: “I try to keep all this in mind too when I’m paying my own invoices – usually, I aim to get them cleared within a few days.”
Many of those who responded to the EDP survey did not wish to be identified because of fears it could lead to negative commercial repercussions.
One FSB member near Diss, who did not want to be named, had to go as far as legal proceedings going through the county court process when a client did not pay an invoice.
He said the process had involved going through a Manchester office and then the county court in Northampton. The client eventually paid when it got to the courts.
The businessman said: “It cost me time which I could have turned into an equivalent amount of money. It cost time chasing it up. The court fee was £70.”
For one company non-payment proved to be the final straw.
Eleven staff at a small family-owned north Norfolk construction supply company lost their jobs after North Walsham-based Newnham and Abel Ltd went into administration last month.
The owner, who has continued trading as Newnham and Abel Structures Ltd, said at the time the administration had been as a result of late payments and a default by a major client.
Insolvency practitioner Andrew McTear from Norwich firm McTear Williams & Wood said: “It has been an issue. I think it is particularly happening in construction. I also think it is a bit of a problem when there is a downturn and things get tough it becomes disproportionate.”
He pointed out that the late payment and interest legislation was there, but in practical terms people did not use it.
“If your customer pays you late and you want future business from them you are not going to get it,” he added.
Martin Lake, chairman of the Mid Norfolk branch of the Federation of Small Businesses, said it was imperative for businesses to be paid.
He said: “Money is the lifeblood of business; if money doesn’t flow the business dies.
“In this credit infested world it is imperative for a business to be able to have confidence not only in the ability of its customer to pay, but also the desire of its customer to pay, because despite ease of access to credit checks and business references the actual time in receiving payment may well vary given the frequency or urgency of each individual supply.”
He added: “There is a point in any transaction where the buyer wants to buy, it is at this point that the seller must be absolutely clear on the terms of the sale including when payment is expected.
“Businesses must take all the steps they can to ensure they are going to get paid for their work, otherwise, what’s the point?
“As a yardstick, would a bank give you a loan against the assurance you have from another company to pay you?
“I am keen to stress that most companies are very good and pay on time every time, it’s just a few that seem to have this embedded into their business model.”
So what next? The government does say it is engaged with the issue.
Business and enterprise minister Mark Prisk said earlier this year he was determined to change the culture of late payment and has held workshops on the issue.
He revealed in March: “By looking at which business sectors have good practice and those that don’t we can start to identify where practical improvements can be made and understand the behaviours that lead to a culture of late payment.
“It’s vital that all business sectors understand the importance that prompt payment has in the cashflow management of a business.”
He admits that legislation alone cannot do enough to enforce prompt payment of suppliers.
“We need practical, business-focused solutions to help SMEs in particular and make sure they are paid promptly.
“One of the most important steps is for businesses to formally agree terms of payments before transactions and stick to these terms.
“Simple practical measures can help SMEs make great strides in securing the cashflow that will help them thrive and grow,” he said.
More than 1,000 big businesses have already signed up to the government’s Prompt Payment Code, which is managed by the Institute of Credit Management.
There are those who have been able to afford to boycott the notoriously bad late payers.
Michael Critien, managing director of Berdita Lingerie, Macrimex (UK) Ltd which is based at Eye, near Diss, supplies 200 shops all over the UK.
He said: “I’ve had some bad experiences which I have learned from.
“The way I have got around it is to get shops to give us their credit-card details. We take money from the card and we give them a 5pc discount if they pay within seven days. It take the burden from their shoulders.”
“In the past we were chasing lots and lots of companies for some time for relatively small amounts.”
He said his firm withdraws credit facilities for bad payers.
“We will only send the goods after they have sent the money,” he said.
“Ninety per cent accept that, but 10pc get really shirty. We have lost one or two customers, but not many.”
He said that the company was in a position to do this as it was a fairly unique operation which has been going for 10 years.
“It is quite easy for me to say I am not bothered,” he added.
“Pay in advance or go elsewhere. People find my attitude on payment rather aggressive, but people understand they should not mess with Michael.
“If you do not pay on time he will chase you and take you to court.
“I think all small businesses need to be tough in their approach to the customers. I realise it is easy for me to say because we have got a unique product, they can always go elsewhere for an ice-cream, but at the end of the day payment for small companies is a big issue.”
He said that they were very careful about who they took on as customers.
“I do careful checks on their history by talking to other people they deal with and checking with other companies.”
Norfolk restaurateur Richard Hughes, who owns The Lavender House in Brundall and therefore has many suppliers, is passionate about paying on time.
He said: “In our business there is no excuse. If you are a builder you have to wait for the thing to be built, but in the restaurant business you get your money that night.
“In the food trade you are buying stuff and serving it within two to three days.
“I do not see an excuse in the hospitality trade.”
While the government has tried to take steps to ease the burden of late payment it is clear it is a problem which will not go away.
It is a Catch-22 situation for businesses who on the one hand need to take action over late payments, but on the other need the business and contracts to survive.
What is clear is that too many businesses are getting away with it.
The penalties must be tougher and the victims must club together to take action against the worst offenders.
The words ‘I’m out’ too often spell the end for an invention before it has even left the drawing board.