There should be a law against it

Oh, actually, hold on...there already is! When the government introduced the Late Payment of Commercial Debts (Interest) Act 1998, giving small firms with 50 or less employees a statutory right to interest for the late payment of commercial debts, the business community hoped that suppliers would sit up, take heed and most importantly pay up.

But though a statutory right to interest and other new entitlements has now been available to all businesses and public sector bodies since 7 August 2002 nothing much has changed and the facts are scary.

The Prompt Payment Code which is administered by the Institute of Credit Management on behalf of Department for Business Innovation and Skills, outlines the real cost to businesses of suppliers paying late as:-

  • Payments between businesses in the UK are typically made 20 or more days beyond agreed terms
  • 4000 UK businesses failed in 2008 as a direct consequence of late payment
  • Overdue payments in 2009 cost UK businesses £180 million in debt interest charges

The major business organisations including BCC, CBI, FPB, FSB and IoD all agree on the importance of paying suppliers promptly and within agreed timescales and Mark Prisk, the Minister for Business and Enterprise, is on record as saying, "Prompt payment is critical to the cashflow of every business, and especially to smaller businesses within the supply chain. But it is not just the timeliness of payment, though fast payment is always welcome, but rather the certainty of getting paid that is really important, and enables businesses to plan both for their short and longer term futures."

Every businessman knows that cashflow is what keeps a business in business. Without proper management and control, a shortage of cash inevitably leads to business failure and insolvency. You wouldn't order goods without knowing when they are going to be delivered, and you shouldn't supply goods or services unless you know when you are going to be paid.

So, what are the choices? If customers choose to flout your terms (and the law) and charging them interest is not an option then Invoice Factoring or Invoice Discounting could provide the perfect cashflow remedy.

The benefits of using an invoice factoring company, such as Shire Funding, are clear:-

  1. They provide a large and quick boost to cashflow and a service which is especially valuable to businesses that are short of working capital. A business owed £500,000 may be able to get £400,000 or more in just a few days.

  2. As factoring is common, pricing is competitive.

  3. They can prove a cost-effective way of outsourcing your sales ledger while freeing up time to manage your business

  4. Factoring assists smoother cashflow and financial planning

  5. Some customers actually respect the factoring company more and pay quicker!

  6. They can give you useful information about the credit standing of your customers and help you to negotiate better terms with your suppliers

  7. They can prove an excellent strategic - as well as financial - resource when planning business growth

  8. Cash is released as soon as orders are invoiced and is available for capital investment and funding of your next orders

  9. They will credit check your customers and can help your business trade with better quality customers and improved debtor spread.

So, until a better way is found to make customers pay when they should factoring and invoice discounting remains the only sure fire way to keep your cash flowing and giving you the opportunity to pay your own suppliers on time!

For more information

Shire Securities Ltd t/a Shire Funding Solutions

Registered Address:
1 Calico Business Park
Sandy Way
B77 4BF
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Tel: 01827 300357

Registered in England and Wales No.05881283


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