Tackling late payments
9 December 2020
While the construction industry has bounced back more strongly than could have been anticipated at the start of the pandemic, the issue of late payments and bad debts is always a concern during periods of economic uncertainty. And as hirers are essential parts of the supply chain, it can affect them, too.
In a report issued earlier this year, the Federation of Small Businesses (FSB) found that 62% of the 4,000 companies surveyed had been subject to late or frozen payments in the wake of the Covid-19 outbreak, seriously stifling cash flow.
Only one in ten had agreed changes to payment terms with clients, meaning the vast majority of non-payments had not been formally signed-off by creditors or debtors.
The Top Service credit reference agency specialises in serving businesses in the construction and hire industries, helping them to avoid problem payers and to reduce bad debt through credit information and effective recovery services.
Director Emma Miller tells me that the company has experienced an upturn in interest in its services from hire organisations during the pandemic.
“It has given people the opportunity to look at alternatives to standard process collections. Our processes have never been standard. We work on a case by case basis and design collection strategies to suit the client, their relationship with their customer and the information related to the debt.
“The industry has also become more aware of looking at tools to support their credit management procedures. Now, more than ever, having as much information as possible at the account opening stage and throughout the trading relationship with the customer reduces the risk of bad debt.”
Emma says that court delays, backlogs and the temporary change to legislation relating to winding up petitions, have resulted in some suppliers, who would normally go straight from their own credit control process to the court system, looking for alternatives.
“We see this as a positive move in that it has given those suppliers the opportunity to see how well a specialised third party agency can work as an alternative to court action. Suppliers have seen a reduced amount of court fees being paid whilst keeping cash coming into the business.”
Another problem that has been encountered by hirers, as well as companies in other sectors, is that of ‘phoenix’ companies. Here, a company rises from the ashes of an insolvency, leaving bad debts behind it and moving forward with a new, seemingly fresh start.
“The best way to be vigilant is to use an agency that can monitor director appointments and resignations,” says Emma. “If a director of an existing company is appointed at a new one, use the information to talk to your customer.
“Of course, the new appointment could be a sign of personal or business growth, but we would advise customers to ask some questions. At best, the supplier is forewarned and at worst, asking the question may result in some work from a new, growing business.”
Another issue that has plagued hirers in recent years concerns fraud and identity theft. “Information is the key here: check, check and double check," says Emma. "Check trade references - are the ones provided linked in any way to the company applying for credit? Look out for new customers who pay before invoices are due: are they a great payer, or are they leading you into a false sense of security?
“A specialist credit information supplier will seek trading experiences from other suppliers, so you don't have to just rely on references supplied by the potential new customer.”
Top Service provides useful advice on fraud prevention here.
“Such information can’t tell you everything. A provider with a team of people can spot abnormalities and pattern changes, no matter how small,” says Emma. “Our experience tells us that if something doesn't feel right, it usually isn't. We offer a range of collection services to meet our customers’ needs, and our ability to create bespoke collections strategies has seen us successfully collect millions for our customers, whilst maintaining trading relationships, where appropriate.”
Photo: Chris Pastrick/Pixabay
