UK businesses tighten cashflow controls

24th May 2012

UK businesses are tightening up their cash and credit control procedures in a bid to prevent late payments which damage their cashflow, according to experts at Clydesdale & Yorkshire Banks.

The Bank’s Invoice Finance team found that over the last ten months, the average time businesses took to collect payments reduced from 52 to 49 days on combined sales of £6.7bn.

Despite this evidence that more invoices are getting paid on time, owners are still concerned about the damaging impact late payments and bad debts would have on their businesses.

A survey of more than 1000 UK-wide companies by Clydesdale & Yorkshire Banks found that around one in ten business owners believed they would be forced to close or seriously scale back operations if their customers took more than 90 days to pay invoices.

Martin Rothera, head of Invoice Finance at Clydesdale & Yorkshire Banks, believes UK businesses have tightened up their credit control procedures because of the growing pressure on cash and the availability of credit.

Martin said: "All businesses, particularly SMEs, depend on healthy cashflow to pay staff, buy stock and keep on top of their own invoices and bills. Poor cashflow management can be one of the most critical issues that businesses face but we believe UK companies have listened to the advice to tighten up their systems and controls."

The Asset-Based Finance Association, which monitors invoice finance across the UK, found that total invoice finance lending in the UK and Ireland last year increased by seven per cent year-on-year. The annual report also found that businesses using invoice financing experienced, on average, a 13% growth in sales last year.

This is in line with the Bank’s findings that, since the start of 2011, 13% of its invoice finance customers also reported an increase in sales.

"Late payments and bad debts are a headache," continued Martin. "They can affect not just the day-to-day running of a business but the sustainable growth of ambitious and profitable companies. We are seeing more businesses taking out Credit Protection alongside their invoice finance facilities to mitigate losses from bad debts.

Martin said that businesses can take other simple measures to ensure their cashflow procedures are as effective as possible.

He said: "Adopting simple procedures such as agreeing payment terms and conditions upfront or using incentives for early payment can have positive effects.

"However, if late payments are a concern or are restricting cashflow, it is important to be rigorous in the debt collection process; recording conversations, possibly enlisting the services of debt collection agencies but ultimately looking for a swift resolution."

Business and Enterprise Minister, Mark Prisk is currently leading a campaign to reduce late payments which can have a critical impact on businesses, particularly SMEs. The UK Government recently extended its Prompt Payment Code, a code of conduct for all businesses to adhere to when it comes to payment and treatment of suppliers.