MARTYN Pullin, a partner in the Teesside office of specialist business advisory firm FRP Advisory, offers practical tips on how firms can manage their customers and processes to reduce the risk of late payments.

Last month saw late payments once again in the spotlight as Bupa, the insurance giant, was named and shamed for poor payment practices towards one of its suppliers.

The insurer received a warning by the government’s small business commissioner after paying a supplier 75 days after receiving its invoice – 15 days outside of its agreed payment terms.

Bupa was also criticised for imposing a two per cent interest rate for late payment in its agreement with the supplier in question – a figure significantly below the eight per cent statutory rate that legally applies when no such agreement is in place.

Over the years, wider access to credit control and credit checking systems has made it easier for supply chain businesses to make informed decisions on who they extend credit to.

Despite this, slow or late payments – like those displayed by Bupa – remain a challenge for many. Indeed, research from Lloyds Bank’s Business Barometer found that more than half of UK businesses surveyed had been paid late in the last year, with 38 per cent experiencing late payments more than once. From speaking with firms across the North-East, we know that they are no exception.

Late payments can arise for a number of reasons. In some cases, it’s due to simple administrative errors. But in others, it’s a strategic – albeit unethical – business decision by firms as they look for an easy way to boost their own cashflow situation.

For suppliers at the receiving end, the impact can be significant. The longer a payment is outstanding, the more difficult it can be to manage cashflow, ultimately hindering the opportunities for growth.

As such, it is critical that companies take every step to reduce the risk of an invoice being settled late.

One way businesses can work to manage the risk of late payments is ensuring that their sales teams – not just those in finance – are playing their part in the process.

Client and account managers are often able to leverage their close relationships with customers to effectively follow-up on outstanding invoices. They’re also likely to be the people who have the strongest insight into a customer’s day-to-day operations.

By sharing intelligence on clients’ cashflow or trading pressures with their colleagues and lending their weight to follow-ups, sales teams can help a company anticipate and manage poor payment.

To protect themselves against repeat offenders, businesses should also consider developing a centralised, easily accessible, database containing information on creditors and their payment practices. These make it easier for every team to monitor a creditor’s payment history and flag those with poor track records.

Digital solutions can also prove to be useful tools. For example, for those in the logistics sector, ‘sign-on-screen’ technology – as seen in the handheld units sometimes used by delivery drivers – can help streamline the invoicing process by reducing the risk of any administrative errors, providing proof of delivery and speeding-up the invoicing process.

This technology works by securing written confirmation that their clients have received the products or services agreed. Payment orders can then be quickly batched with an invoice and sent to the customer for payment.

Simple digital measures, such as read-receipts on emails containing invoices, can also be of help. This can help businesses track their invoices’ progress, and provide supporting evidence in the event of payment disputes.

Finally, it’s essential that businesses remain in regular contact with their customers to ensure they remain front of mind when it comes to payment.

For businesses who are regular suppliers of a customer, established processes will likely already be in place. However, those working on a project-basis – as is common in sectors like construction – may find themselves as one of many on a long list awaiting payment, and it may be harder to ensure you’re paid on time.

Here, having a close understanding of a client’s critical path and how your products or services are needed to help operations progress smoothly can help firms to stress their importance and make a compelling case for prompt payment.

Late payments are undoubtedly a challenging part of the business landscape, and there will always be clients that choose to act unscrupulously, but there are steps businesses can take to help manage the issue.

And with ongoing late payments carrying the potential to limit growth, businesses shouldn’t hesitate to review their operations and practices to see how they can best protect themselves from their impact.