Late payments is a pressing issue that has plagued UK businesses and suppliers for too long. Research shows that in 2024, 32% of micro businesses paid their suppliers late, citing delays on the consumer end as the main reason.
In the same vein, 20% of large scale businesses are also guilty of paying their suppliers late, with 36% of these businesses citing administrative errors as the main reason for delays in payment.
This corroborates a report by Chaser HQ that found that 9 out of 10 businesses are typically paid late.
Late payments are not only a bane for suppliers - they can negatively impact buyers as well. In its latest business report, Good Business Pays reported that fashion retail company, Arcadia, was in £500 million worth of debt when it fell into administration in November 2020. The insolvency was largely due to Arcadia’s inability to pay back interest on loans.
The key to avoiding late payments is to do your due diligence on businesses that you plan to work with. Company Watch provides a holistic view of an organisation’s financial health, allowing you to make informed decisions about the people you partner with.
In some scenarios, late payments may be unavoidable due to unforeseen circumstances. However, you can significantly reduce the likelihood of delayed payment by following the tips below.
How to tackle late payments: 5 key methods
1. Set up automated payment systems
“Slow payments are getting old, fast!” - Good Business Pays.
According to the Institute of Financial Accountants (IFA), automated payment systems can reduce late payments by up to 40%.
This is because these systems largely streamline the billing and payment process, lowering the risk of human error and delays. They also significantly reduce the hassle of following up and manually sending invoices, especially if you are dealing with multiple partners. This makes the risk management process a breeze.
Consider implementing Stripe or PayPal payments when organising a transaction. These are electronic transfers directly from a client's bank account to yours. You can also smoothen operations by allowing clients to pay with credit cards online or over the phone.
Perhaps the most streamlined way to collect payments on time is to provide a secure online platform for clients to view and pay invoices. This allows for clearer communication in terms of payment deadlines and reduced processing times for funds to reach your account.
2. Leverage Payment Practices Data
Company Watch’s Payment Practices Data empowers businesses with invaluable insights into the payment behaviours of the companies they engage with.
Key features of Payment Practices Data include:
- Average days to payment: Measure from the date of invoice receipt to the date cash is received by the supplier.
- Percentage of payments by period: Track payments made within 30 days or fewer, between 31 and 60 days, and in 61 days or longer.
- Percentage of overdue payments: Highlight payments not made within the agreed payment period.
This tool allows businesses to analyse and predict payment behaviours of potential partners, making it easier to make informed decisions about who to work with.
3. Implement a strict credit policy
A well-defined credit policy is the foundation for managing accounts receivable. It not only reduces the risk of late payments, but it also improves cash flow and ensures consistent application of credit terms across all clients.
This policy should outline clear payment terms. Specify the due date and any late fees or interest charges. Typically, companies implement a strict 30-day payment term with a 2% late fee per month.
You should also determine the maximum amount of credit you're willing to extend to each client from the onset of your deal. For maximum efficiency, clearly outline the step-by-step process for following up on overdue payments. Lastly, the terms of credit must be baked into the initial contract to ensure that all parties adhere to them.
It is also a good idea to do your due diligence on whether or not the company you are about to work with has a history of late payments.
4. Know your partners
This may seem like it goes without saying, however, knowing your partners before you sign a deal with them might just be the most important part of the process. Conduct corporate due diligence checks on all potential partners to get to know them better prior to any official communication.
The Company Watch platform allows you to look up any registered company in the UK. To that end, you can verify director information, see any official documents filed, and get an expert assessment on company health. With our all-new Vigilance™ tool, you can also assess fraud indicators, potentially saving you huge sums of money in the long run.
5. Conduct enhanced due diligence checks
Enhanced due diligence is a crucial part of the due diligence process. It involves taking a deep dive not just into a company’s financial health, but also digging into director information and other such factors that may be critical indicators of financial health.
At Company Watch, we conduct in-depth enhanced due diligence checks by analysing the following key factors:
- Financial stability, including business credit score and payment history
- Legal information i.e. contracts, licenses, bylaws etc.
- Operations checks and administrative tensions
- Corporate due diligence, particularly tax due diligence
- IT assessments
To find out more about these individual factors, read our blog on enhanced due diligence for M&As.
Key takeaways
- Enhanced due diligence provides a holistic view of an organisation’s financial health, allowing you to make informed decisions about the people you partner with.
- Always do your due diligence on whether or not the company you are about to work with has a history of late payments.
