InCredit

Last week saw the official inauguration of The Shard, London's newest skyscraper and (for now anyway) the tallest building in Europe, by Prince Andrew, Boris Johnson and the Prime Minister of Qatar. The building, which will change the London skyline forever, has been reported to have received 95% of its funding from the state of Qatar. It is not only the Qataris who are investing heavily in the UK. Indeed, there is a general public acceptance here that international investment is necessary, particularly with the current uncertainties being faced by our Eurozone trading partners, and a key component of a sustained economic recovery.

But while international investment can help reinvigorate the UK's fortunes, British companies still need to think globally to drive exports. More and more firms are looking for overseas opportunities and to find suppliers and trading partners who are not being directly affected by the Eurozone crisis. However, effective due diligence is essential to ensuring businesses can seize investment opportunities and trade abroad prosperously.

For many company owners, breaking into an overseas market for the first time, particularly when the UK economy appears to have entered a double dip recession, can be a great boost. However, celebrating a client win before taking time to assess that client's ability to pay invoices can lead to disappointment and bad debts if risks are not managed effectively. While the risk of doing business with any client needs to be assessed carefully,  trading overseas can put firms at increased risk of non-payment as these clients can be harder to trace and there can be little legal redress.

As such, it's good to see credit managers are choosing to use protective measures such as credit reports to research opportunities rather than cure methods such as employing debt collection agencies. Of those credit managers polled in a recent Graydon survey, 58 per cent cited credit reference agency purchased reports among the range of tools they use to guard against bad debts, compared with 23 per cent using debt collection agencies and 2 per cent using invoice discounting. The research also showed that companies are increasing the use of credit reference agencies in response to increasing economic volatility and are ensuring they manage their risk effectively whilst still seeking out new opportunities for growth.

Companies need to remember that even when the economy returns to health, it is crucial that businesses put safeguards in place to protect against the risk of non-payment and the impact that this could have on their business. Protection rather than cure needs to be the new motto for sustainable growth, all the more so while the UK is a hot destination for international investment today, investments trends can change very quickly, and not always in a nation's favour.

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A Treasury Committee report published last week confirmed 'serious and often insurmountable problems' in securing bank lending at reasonable rates. At least that was the view of some MPs, including Labour's rising star Chuka Umuna, who took the study as their cue to attack Government policies on loan guarantees, and other commentators, including the Daily Mail who quickly spotted the chance to indulge in a little banker bashing (as is the wont of middle Britain in these troubled times).

But take a moment to look beyond the politically charged access to finance maelstrom and you quickly realise that the issue of tighter bank lending policies is just one part of the business credit equation. After all, surely nobody wants a feast of reckless, speculative lending followed by an inglorious spate of failures.

From a credit perspective, this puts the onus on businesses themselves to proactively manage their credit profiles, and ensure that the rating agency community is able to present them in the best possible (and accurate) light, so they and their business partners can trade with confidence on the basis of optimised credit decisioning information.

That's the principle anyway. But getting your accounts in order counts for nothing if your cashflow situation looks as desperate as Chelsea's rearguard action against Barcelona in last week's football encounter.

And it's here that the issue of having robust credit control procedures in place comes to the fore. A new report published this week by Graydon UK and the Forum of Private Businesses suggests many firms could do better in this respect.

The poll of 500 companies revealed that only 44 per cent had formal credit control procedures in place, 38 per cent mixing formal and informal approaches, and the remainder seemingly making it up as they went along.

It's a case of 'not so happy go lucky' though as the survey highlighted also how the late payment of trade invoices is still impacting 51 per cent of companies. And of those affected, one in five say they've nearly been put out of business as a result.

So as the late payment culture persists, companies need to stay on the backs of those customers who withhold cash. Traditional British reticence to ask for payment is not what the Doctor should be ordering here. Our study found that when companies do take proactive steps to chase late payers, such as telephone contact, stringent credit checking or simply refusing to complete future projects, the late payers are often kicked into action.

In the meantime, Graydon is one of the organisations, along with the afore-mentioned FPB, the Institute of Credit Managers, and indeed Lloyds TSB which is vocally seeking Government action to stamp out late payment.

But with the best will in the world, success on that front isn't going to be achieved overnight, and in the interim everyone seeking to grow their bottom line needs to take their own credit decisioning seriously. It could save your (business) life.

For a full copy of the Graydon UK report on late payment, produced in partnership with the Forum of Private Business, click here

SMEs face many challenges and uppermost among them is chasing: chasing orders and chasing payment. According to research by law firm Lovetts, chasing payments in Q4 2011 was a bigger priority for SMEs than it was a year ago. Today, in an attempt to improve their cash flow, firms are using a Letter-Before-Action after 91 days instead of 97 days. Lovetts chairman Charles Wilson says: "There's definitely a feeling of businesses battening down the hatches to ride out the economic storm."

Graydon's own Q4 research found that 51% of businesses experienced an increase in late payments, so it's no wonder that creditors are chasing harder and faster. What is causing the payment delay and what help can SMEs get?

Legislation can help. Indeed, our research also revealed that 76% of respondents thought the government should do more to protect them against late payment. Judging from past legislation, such as the Late Payment of Commercial Debts Act, they have a point. This Act saw suppliers coerced by big business into accepting longer payment terms against their will, and 56% of our respondents fell foul of this deception.

Prevention can help. Regular credit checks can prevent protracted default but all too often they're reserved for checking out new buyers. Monitoring existing buyers is equally vital because their circumstances can change in a heartbeat. SMEs must also understand how important their own credit rating is too. With access to finance so difficult for SMEs, a strong credit rating will provide a valuable source of reference.

Debt collection agencies (DCAs) and solicitors can help. DCAs will typically charge    5%-10% commission to collect a commercial UK debt and they'll do so on a "no collection: no commission" basis and many solicitors offer Letters-Before-Action at a low fixed cost. Both these third-party solutions provide the escalation element of a collection strategy, and they free the SME to chase orders instead of overdue accounts.

All of this help will go a long way to alleviate the negative impact of late payments. And that's great news for the 45% of our respondents who claim late payments will inhibit their ability to invest in people and services. Help is available to SMEs. And with it they could find poetic justice.