It’s payback time

The British dictum of never paying a bill “until it’s red” might make sense if you are a consumer faced with your quarterly utilities bill. But for a small business not blessed with the luxury of 90-day credit, having to tolerate powerful employers or clients that delay payment is a huge problem.

As any freelance designer knows, every bill is someone else’s income. Not dissimilar is the client-consultancy relationship. Some might even venture, perhaps in private, that design groups are forced all-too-frequently to adhere to the whims of large clients at almost any cost.

Last week’s Federation of Small Businesses study on private sector bill payments exposes some alarming patterns in the payment of suppliers by public limited companies. Its tables, a precursor to the Local Government Payment Performance Tables and EU legislation, draw attention to the best and the worst of Britain’s payers. Now the Federation, in conjunction with the British Payment Practice Group is attempting to implement a new code of practice. But is this enough?

There is little doubt among the design community that the production of these tables is a positive step for smaller businesses. They could serve to highlight the previously ignored predicament of cash thirsty SMEs, as well as assist them with credit planning. In fact the average 46 days for settling payment, 16 days over the “conventional” 30-day limit, is not itself of huge concern to most – as long as they are able to plan around this figure accordingly.

Institute of Directors business policy executive Richard Wilson, a member of the BPPG, is positive the tables will drive up payment standards and encourage design groups and individuals to practice credit management.

“There is a considerable amount of study to show that those companies which do practice credit management are the ones that stay afloat. Knowing the average length of time taken to pay an invoice helps. If suppliers know they are going to see delays then contingencies can be made.”

“When dealing with the multinationals they can be brilliant at paying,” says DBA chairman Colin Porter who is surprised by the length of delays found. “The overseas companies have been the worst in my experience,” he adds.

Kinneir Dufort Design partner, Ross Kinneir, feels the average payment figure is not of real concern. “Getting paid can depend upon how you behave. To some extent you are in control. It is about being happy to ring up and make enquiries about bill payments. You need to be unconcerned about asserting your position.”

And if consultancies really are suffering at the hands of the PLCs, how do they in turn treat their freelance employees?

A spokeswoman for the Association of Illustrators says although the association does not get a huge amount of complaints of mistreatment, individuals are sometimes left out in the cold by employers.

“If people are isolated they tend not to pursue payment but you have to chase the money and maybe take it to the small claims court. We can advise people and give help with writing to employers. We also produce The Rights Book,” she adds.

Encouragingly, the one clear message which these league tables give out is that from now on all companies’ payment behaviour is being monitored.

But the question still remains as to what impact the figures can have if they are not audited externally. They are based purely on what companies see fit to print in their annual reports, albeit by Government obligation. Without due checks, the worst-case scenario is “over-zealous” estimates from the firms causing the trouble, something even the glowing “one day payers” may do well to note.

Fashion chain Next comes out at the top of the table of quick payers, but a spokeswoman points out that its one day turnaround does not amount to a “policy for paying suppliers” but stems from the public limited side of its business and is a result of forward payments on the rent of its stores. She explains that suppliers are contracted on individual terms and next year’s entry will in fact be modified from one day to five.

This presents a worrying scenario. If figures are so easily changed, what is to stop less reputable companies from hiding their real payment records? The lack of vetting could be cause for concern.

Moreover, if consultancies and other small businesses re-adjust to a 46 day billing period to help protect themselves, how do they know that this is not a meaningless average of doctored figures?

IOD Credit

Management Advice

Keep in good contact with invoice recipients

Send your invoices frequently

Send an invoice reminder just before payment is due

Keep records on all your suppliers/clients

Make credit checks on firms where applicable

If all else fails invoke the right to interest on late payment (base rate plus 8 per cent interest)