Why are 75% of businesses afraid to chase late paying customers?

It is hard to believe that in this time of economic uncertainty and with news of Insolvencies on the rise, a staggering 75% to 76% of businesses are afraid to chase late payments. Why?

 500 business were approached with most of them having up to 30 days payment terms, 14% had agreed longer terms of up to 60 days with suppliers.

The small business commissioner Paul Uppal and business lender Growth Street carried out a survey revealing that circa 76% of SME’s are reluctant to pursue late paying customers and what is worse is that they believe taking action may mean they do not get paid in full.

The financial stress that late paying customers cause can have dire consequences with the “cash gap” growing too big to trade through. Time and time again we stress the importance of implementing a good credit policy, with equally good credit control and an escalation process. The reality is that the longer a debt remains unpaid it erodes the profit margin daily and it becomes harder to collect. Taking control of the problem early or referring it to reputable recovery firms has proven time and time again that the cost is mitigated by the interest and late payment fees and the easing of the stress on the cash flow. Yet so many continue to try and deal with it in house, using MCOL which is not policed at all, only to realise the costs of enforcement is higher than they thought, or the debtor cannot pay or they have issued against the wrong party.

Paul Uppal stated that he remains committed to addressing the issue to increase confidence and change the late paying culture, there can be no doubt that the business owners themselves also need to consider implementing measures to be more pro active as opposed to re active.

Credit Control and Risk Management do not have to be expensive or complicated and outsourcing credit control is very effective if done right, engaging with customers in a polite way, having a paper trail (or digital trail) that makes it difficult for customers to raise disputes and addressing any that are raised swiftly goes a long way to avoiding payments.

Perhaps most importantly a business owner should not assume that every customer will pay on time without prompting as whether the customer is a consumer or a business they will budget, and any unexpected costs and unforeseen circumstances will impact dramatically. A Sole Trader or a Partnership will often merge the money for the business in with their personal living costs which makes it difficult to see whether the business can afford to pay.

If you are a business owner or a Director with a growing ledger of customers that does not know where to start in respect of a Credit Policy or Credit Control the ICM Group can help.