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Neglected £40bn makes late payments an ethical issue

UK SMEs are owed up to £40bn through unpaid invoices, which shows that the issue of late payments refuses to go away even as businesses in Britain enjoy a sunnier economic client. The size of the deficit has been revealed by Bacs Payment Schemes following a recent survey, and it raises questions over the ethics of firms who deliberately delay payment for their own benefit.


SMEs reluctant to chase late payers

The size of the owed funds proves that the matter is widespread – representing an average of £38,186 per firm – and many SMEs understandably feel helpless to chase payment for fear of losing out on business. Speaking to The Guardian, Simon Webley, research director at the Institute of Business Ethics, notes: "It is one of those areas that is hardly covered by law or regulation, but it's becoming more and more serious for SMEs who are bullied when it comes to being paid according to contract."

In Europe, businesses must follow the EU Late Payment Directive which came into force in March 2013. It allows creditors to charge interest and recovery costs should a debtor fail to pay for goods or services on time, which is 60 days for business and 30 days for public bodies. The only exception is when both parties explicitly agree otherwise. Despite the directive being established, many are reluctant to enforce it for fear of being considered a nuisance and pushing vital customers towards competitors.


Larger companies exploiting this reluctance

Larger firms realise this, and some exploit leniency from their creditors by purposely delaying payment to boost their cash flow. SMEs do have the option of taking legal action, but this is costly and severely damages the business relationship, compounding the issue of restricted funds even further. Some would argue that it’s just business, a selfish step firms need to take to remain on top when competition is fierce, but it is entirely unethical. In the long-term, it can also damage a firm’s financial sustainability should suppliers refuse to do business with a notorious late payer, and many would be wise to reconsider their approach. 

Strong credit control is needed

If your firm faces pressure from debtors, strong credit control can help to reduce the threat and give buyers no reason not to honour your payment terms. Invoices need to be sent on time, with purchase order numbers quoted and all other details correct. Credit scoring will give some idea about a customer’s financial position and payment history to help you make a decision over whether to extend credit, and invoicing needs to become a priority, not a secondary task.


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