Good Business Pays CIC has been researching the payments behaviour of firms that later go bust. Is there anything in their payment practices that could have alerted us to their future financial failure? Without giving anything away their report is coming out next week so look out for the answer to that question.
This ties into something we’ve been talking about for a long time. If you are the boss or director (or chair or NED) of a big firm what message do you think it sends out if your previously good payment practices start to deteriorate? If you previously paid suppliers in 30 or 60 days, what do they read into your new 90 or 120 day payment terms? If you’ve always been a good payer, paying by the due date what goes through their minds if you start paying late?
Your suppliers start worrying that you are conserving cash and are facing financial difficulties. Your shareholders, investors, competitors and would-be employees are likely to feel less confident about your ongoing viability.
If you are thinking of taking on work for a new customer, check their payment practices if possible. There’s publicly available data on the payment practices of the UK’s biggest businesses from the Department for Business and Trade. The biggest firms have a legal obligation to report twice a year – and those that don’t are breaking the law for which Directors can be prosecuted. Check whether the firm is signed up to the Prompt Payment Code? If so they’ve committed to paying at least 95% of their invoices from small supplier within 30 days and 95% of invoices from bigger firms within 60 days. Check smaller firms out with the credit reference agencies. Be prepared to walk away from work with poor payers or you could be left high and dry if your customer becomes insolvent.
And look out for the report from Good Business Pays CIC next week. #EveryoneBenefits when small businesses get paid quickly.