This article was provided for the Recruitment Start up Centre by James of www.initiate8.co.uk
Is waiting too long for payment threatening your business? A culture of late payment in the UK is undermining the integrity of our industries and damaging small businesses. It needs serious consideration when setting up a recruitment company, but it’s an area that can be supported well if you opt for the services of an incubator to help you through the first months of your fledgling business, or during a growth period.
Late payments are squeezing the life out of our economy and the subject is gaining attention, with new measures proposed to help protect the most vulnerable, yet essential, small and medium sized enterprises (SMEs). If you are experiencing late payment problems, or worried about setting up a business because of potential cash flow issues, you are not alone. According to research by BACs:
- ¾ of small businesses wait a month beyond the agreed timeframe for payment.
- Late payments cost a business around £677 per month on average.
- SMEs are owed around £32.4 billion in 2015.
- 1 in 5 directors have taken pay cuts to cover shortfalls.
Cash flow is King!
In practical terms a cash flow drought can sound the death knoll for a start-up. Late payment inhibits trade, escalates costs, and prevents investment. Ethically, we should ask ourselves if we want to encourage a business practice that threatens the stability of our economy?
From a small business owner’s perspective, late payment is a lose-lose situation. Wasting up to 25% of your time chasing money restricts productivity and the knock on effect of being unable to pay your suppliers feeds a vicious circle in which only the banks benefit from a relentless demand for overdrafts and loans.
How recruitment fares …
The recruitment industry suffers at the hands of late payment, particularly in the temp sector where agencies are required by law to pay workers, regardless of having received payment themselves. According to Hilton Baird Collection Services, 40% of recruiters have had to rely on borrowing money to bridge the gap.
What is being done?
The government is implementing new codes of practice to encourage fairness throughout the payment process. The Prompt Payment Code (http://www.promptpaymentcode.org.uk) was introduced on 26th March 2015 urging business owners to sign up and commit to shorter invoice periods. Public sector contractors are now required to pay invoices within 30 days and by 2016 large business will have to declare payment information in their half yearly reports.
What about my business?
The above measures are well and good, but will take time to achieve momentum. Standard advice to business owners would be:
- Implementing effective due diligence – assess the creditworthiness of companies with which you set up trade agreements.
- Clearly setting out terms of business prior to undertaking a business arrangement.
- Sending reminder letters in advance of payment.
- Claiming your statutory right to late payment interest.
- Taking out insurance to cover failure to pay.
However as a small business this can be a slow and daunting process, particularly when your clients need your time and attention.
Initiate8 is an incubation company helping individuals start up new recruitment businesses, and those who wish to achieve optimum growth in already established companies. We undertake the administration of your business and oversee everything listed above: help with your credit policy, chasing payments, and instigating action on your behalf if necessary. With Initiate8, setting up your own business doesn’t need to be a lonely path. We are here to support your success at every step.
