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A timely reminder: the chronic practice of late payment continues unabated in the UK, in spite of the legislation that was designed to prevent it. Peter Rowe explains why long-suffering creditors should make a stand.

A poll conducted by the Better Payment Practice Group (BPPG) recently revealed that 10 per cent of firms would continue paying their suppliers late even if all of their customers paid them on time. Furthermore, various surveys have shown that creditors are unwilling to exercise their statutory right to charge interest on late payments. Critics therefore claim that the legislation has failed to solve the problem.

Those who doubt that the BPPG is realistic in seeking a change to the payment culture in the UK are missing the point: late payers will persist if their creditors let them. The key to tackling the issue in any business is a sound credit policy and the conviction to change.

It remains an unfortunate fact that, although many firms have their policies on equal opportunities and health and safety etc, they don't yet have a standard credit policy. Without one in place, they cannot realistically expect to be paid punctually.

What constitutes a good credit policy is well documented (see panel). Effective credit management gives businesses the means to tackle late payment. A good example of this is the last resort of taking action against a late payer. In order to take such action it is important to answer five basic questions:

* Who is the debtor?

* Can you prove the claim?

* Have all genuine queries been resolved?

* Can you show you are taking a "reasonable" approach to collection?

* Is the debtor worth suing (can they pay)?

Answering these questions is possible only through the implementation of a good credit policy. In light of this, the BPPG's message is a simple one: all the tools are there, including the legislation, so it's now important for businesses to take control.

There is a precedent in Europe for a major improvement in payment culture. Three decades ago Scandinavian payment patterns were similar to those that exist in the UK now. Sweden's government started tackling the problem with the Debt Recovery Act 1974, which dealt with a major cause of late payment: lack of clarity about what the payment terms actually were. This law slated that all demands against a debtor should be in writing and contain clear information on the creditor's name, the debt's nature, the capital sum, the interest charge and the payment method.

Soon afterwards the government introduced statutory interest. Sweden's Interest Act 1975 ruled that, in the absence of a contractual rate, debtors were obliged to pay interest on overdue debts from the due date. Compensation for administrative collection costs was then introduced by the Debt Recovery (Reimbursement of Costs) Act 1981. With the catalysts in place and the commitment to implement change, Sweden has transformed its payment culture. According to Grant Thornton's 2003 international business owners' survey, the country now has one of the lowest average payment periods in the world.

We have started the process of change in the UK. It now requires the conviction of business owners and their advisers to maintain this momentum. And it's up to all of us to play our part.


* Check a new customer's creditworthiness before drawing up a contract.

* Refuse orders if a customer has an unacceptable payment record, or obtain payments in advance.

*Set strict credit limits and keep to them.

* Prepare unambiguous written contracts and/or terms and conditions of trading.

* Involve the sales force in negotiating the payment terms and ensuring that these are understood and agreed at the start.

* Make sure that you know and comply with the procedures used by your customers' buying and accounts departments.

* Initiate and maintain close contact with your customers, particularly with the person responsible for paying your account. Try to create a rapport so that you are top of fine list to be paid even when money is tight

* Make regular credit checks on customers

* Ensure that all despatch notes and invoices are accurate and delivered to the right person at the right address at the right time

* Put a stop on supplies to customers who aren't paying, and use their desire for further supplies to encourage them to pay up.

* Send regular reminders and chase payments persistently by phone, fax, e-mail and visits to your customers.

* If all else fails, place the matter in the hands of a debt-collection agency or a solicitor who specialises in debt collection.

Peter Rowe is director-general of the Institute of

Credit Management and a member of the Better Payment

Practice Group
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Title Annotation:Finance Late Payment
Author:Rowe, Peter
Publication:Financial Management (UK)
Geographic Code:4EUUK
Date:Feb 1, 2004
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