Prompt Payment Code - How can it help me?
Late payment remains amongst the most significant challenges facing small businesses.
Across the country firms are struggling to keep on top of their cashflow – and often it is clients’ failure to pay on time, rather than a lack of sales, which makes this difficult.
Politicians have been keen to signal their support for small business, and late payment has been one of their favourite topics. But there has been little in the way of concrete proposals, aside from a government pledge that Whitehall will pay its suppliers promptly.
Last week, though, the Forum of Private Business signalled its support for a major new scheme “hosted and administered” by the Institute of Credit Management and the Department for Business Innovation and Skills.
The Prompt Payment Code is a voluntary code of conduct to which large companies are being invited to sign up. Its requirements are simple: signatories should pay according to the terms agreed at the outset, should not change payment terms retrospectively, and should treat suppliers fairly and equally regardless of size. They should also give clear guidance of payment procedures, and should request that lead suppliers also encourage the adoption of the code through their own supply chains.
How will this help me?
Any moves to encourage prompt payment are to be welcomed. Clearly, a voluntary code applying only to large companies will only help a relatively small number of firms. But it helps to reinforce a general sense that late payment is not acceptable, and that suppliers need to be paid promptly.
How can I prevent late payment?
1. Make your payment terms clear
By ensuring that your customers and clients are aware of the terms of your sale, you can help to avoid problems further down the line. Make sure that terms are clearly displayed on all invoices and sales material.
2. Chase late payment
Tight credit control procedures are one of your most important weapons in the fight against late payment. It is remarkable how many businesses do not chase unpaid invoices until some time after the fact – or, even worse, who simply write them off. Consider sending a reminder shortly before an invoice comes due, and ensure that you chase up unpaid bills immediately. Often, a simple letter or phone call is all that is needed to persuade the client to settle up. Where possible, try to identify ways to automate this process. Many bookkeeping products have the capacity to automatically issue reminders.
3. Run credit checks
You should consider using a credit checking facility before extending larger credit lines. Business credit checks are simple and cheap, and can help you to identify potential problems in advance.
4. Consider factoring
Factoring is one way in which small firms can address cashflow issues. Under these arrangements your invoices are passed to a third party ‘factor’, who takes responsibility for collection. The factor then pays you the face value of the invoices, minus a fee.
5. Remember you’re not obliged
Finally, you should remember that you are not under any obligation to extend credit. Clearly, the expectation of credit varies from industry to industry. But you should try not to feel pressured into offering it if you do not feel comfortable doing so. Consider each application on its own merits, and remember that you are free to say no.