Late payment among businesses has been back in the news again, with the government responding to another consultation on how to tackle the problem and new figures from BACS showing that the issue is getting worse, says Chris Meyer, director and founder of Orchard Funding.
The government has fought shy of recommending a statutory maximum payment term for businesses and while it has promised to make larger companies publish their terms, this will not help SMEs who need a more immediate solution.
The problem is vast. New figures from BACs (July 2014) state that 60% of small businesses are experiencing late payment and in total they are owed £40bn with the average company waiting for £38,186 in overdue payments. One in four companies spends more than 10 hours a week chasing invoices.
Our experience shows that accountants are just as vulnerable as their clients. In a straw poll of 25 accountancy firms conducted by Orchard, each firm was owed on average £2,855, that’s a combined ADA value of £4.8m.
Late payment can have a major impact – it means reduced profitability and restricted business growth, paying suppliers late and relying on other methods of finance such as overdrafts and credit cards. With the average business being paid 38 days beyond terms in 2013, accountants need to think creatively to combat issues with their own cash flow.
So how can accountants help themselves? A few have taken matters into their own hands and offer direct debit options or in-house standing orders to their clients. The problem with direct debits is that a firm needs more than 10,000 individual direct debit collections to be successful in setting up a facility. And both direct debits and standing orders cost money.
Increasingly, accountancy firms are reconsidering professional fee funding, previously viewed as a “distressed purchase”. Rather than bringing it in as a last resort, some firms are using it cleverly as a core part of their business model and planning.
Essentially, it is a loan facility that allows them to extend credit to their clients, who have to pay in instalments over an agreed period up to 12 months. As well as injecting certainty into the firm’s cash flow, it also benefits clients who can spread payments over a longer period. There are no minimum or maximum requirements and accountants who use fee funding say that it has freed them to concentrate on other matters such as practice development. There are a number of providers out there, including us, who provide this kind of facility.
With late payment continuing to be an issue for both accountants and clients, isn’t it about time that we looked at fee funding in a different light?
Chris Meyer is director and founder of Orchard Funding.