Colin Walls: Don’t let late payments spoil your Christmas

Colin Walls, head of trade and working capital in Scotland at Bank of Scotland
Colin Walls, head of trade and working capital in Scotland at Bank of Scotland
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Retailers across the country are preparing for the year’s biggest shopping bonanza in the run-up to the festive season.

However, many other businesses face a nightmare before Christmas with a combination of widespread holidays and seasonal opportunities putting an extra squeeze on cashflow.

Late payments are already an issue all year round. According to Bank of Scotland’s latest Business in Britain survey, it is the biggest cause of cash flow problems for Scottish SMEs. The Asset Based Finance Association reports that small businesses now wait 72 days on average for an invoice. As a result of these growing delays, Bacs Payment Schemes recently claimed that SMEs face a £40 billion burden.

While excitement on the high street reaches fever pitch, working life can grind to a halt. Finance departments are often short-staffed, and usually find it more difficult than usual to pay what they owe on time. So the issue of delayed invoices often just goes from bad to worse.

Combined with the fact that many businesses are borrowing more to make the most of the opportunities created by the Christmas period, if businesses aren’t careful this can cause an imperfect storm for cashflow.

As ever, businesses must start with the basics. It always pays to check whether a new customer is credit-worthy, and getting insurance can provide a vital means of protection. It can be a big financial commitment, but the cost of the worst-case scenario is far more expensive and may even drive a firm into bankruptcy.

Once you have found a client that is safe to do business with, payment terms must be set out clearly and quickly. Immediately signal that you’re ready to apply the EU’s Late Payment Directive, which enables a firm to claim interest on deferred payments. Have space for the “all monies” retention on your orders to ensure products can be retrieved quickly in the event of delayed invoices.

Yet even with clear and frequent communication from this point onwards, you can never rule out a late payer. Smooth accounting procedures are a must. Coming to terms with the damage caused in a quick and accurate way, and having a clear picture of how to overcome it, provides crucial answers at such an important time.

Even one late payment can be debilitating at this time of year, but delayed invoices do not have to hold businesses back. Invoice finance solutions provide a great way for businesses to cash in on dormant payments. The way it works is simple; a business sells its order book to an intermediary such as a bank, which in turn provides access to 90 per cent of the value of dormant payments within 24 hours.

Businesses need credit to be readily available at all times, especially during the Christmas period. While this may be the season for late payments, invoice finance can enable firms to seize the moment, irrespective of delayed invoices.

• Colin Walls is head of trade and working capital in Scotland at Bank of Scotland