Cash Flow and Extended Payment Terms

Recently an article has been published in the Telegraph (click here to view) about proposed changes to VAT rules to bring in penalties for companies who pay their bills late.

As an idea, this seems very good, and would certainly put pressure on companies to pay their debts in a more timely fashion. Perhaps the key to making some of the worst offenders pay more quickly is to hit them where it hurts, on the bottom line, rather than just ‘naming and shaming’. Although the bad PR from this practice can cause problems, it doesn’t seem to be having the desired effect.

The major issue here would appear to be enforcing such a rule change. Although the government appears to be sympathetic, and indeed are seen to be making an effort to pay suppliers more quickly, there does seem to be a feeling that legislative change would go too far. You also can’t help but speculate that the government would probably rather avoid more battles with major corporations.

Although I would agree that the problem of late and extended payments is a serious problem which needs to be tackled, the realist in me would suggest this is not going to happen soon. In the meantime, SMEs must continue to look for the most cost effective, simple, and practical ways of dealing with large customers in order to maximise the opportunities out there. Without this adversely affecting their cash flow. Whether this is through selective invoice finance, factoring, bank overdrafts or walking away from this type of business is, of course, going to be different for each and every business out there. The key thing, is to find the way which suits your business best.

In the meantime though, the scale of late payments is growing among bigger companies.  Indeed,  one of the most common reasons for an SME to approach Creative Capital is to bridge the cash flow gap caused by extended payment terms. By funding these invoices on a transactional basis, we are able to help companies manage their cash flow, and allow them to deal safely with these larger companies.

To find out more about how Creative Capital can help your businesses cash flow contact us and we’d be more than happy to talk to you.