Slow payers harming cash flow

By Steve Taylor

28 August 2015

Steve Taylor, Sales Director of Premium Credit, discusses the trend of slow payers and how you can prevent them from hurting your cash flow.

Getting some clients to pay their fees on time can be more than just a frustration - these slow paying clients can put a practice's cash flow under huge strain. 

Accountants are often very good at advising their clients of the importance of good cash flow management in their businesses, but many find it hard to practice what they preach – trying to get the right balance of running an efficient practice, whilst not offending the client base.

A rise in late payments can affect a firm's ability to pay staff and suppliers and often results in the firm dipping into its overdraft or cash reserves unnecessarily.

While strong processes around debt collection can help, particularly by having a tenacious credit control function, this solution is often expensive and time consuming for all involved.

Many practices are hesitant to disclose the size of their debtor books or their own debtor day delay.

However another measure, the Experian Late Payments Index, indicated that the national average across all industries in Scotland was 24.89 days for the payment of an invoice once overdue - far exceeding the terms of credit that would be set out by most practices.

The reason for late payment will vary, but often clients have cash flow concerns of their own when being asked to make a one-off bulk payment. Fee collection periods will of course differ from practice to practice and from one industry to another, but it would appear late payments are common throughout the industry.

A short collection period and a client base that all pay on time and within the agreed payment terms is of course the ideal scenario.

While accountants will hope that the majority of their clients will fall into this category, it only takes a small number with lengthy collection times and sizable invoice fees to push a practice into its overdraft at key times of the year.

At the same time, a practice may struggle to pay its suppliers. Why should the practice unwittingly offer their clients "free banking" whilst it absorbs the costs associated with exceeding the agreed payment terms?

Unfortunately, keeping collection times under control is easier said than done. Credit control will of course set aside time each day/week to follow up slow payers and deal with each of them in a consistent way. It stands to reason that a disproportionate amount of time is spent chasing the slow payers, but what is the true cost involved in pursuing this outstanding payment?

A fee funding solution could help all parties involved: the practice is paid upfront for their completed work and the client can spread the cost of the fees over an agreed number of monthly payments. Enhancing both the practice's and the client's cash flow. Client fees are paid to the practice in as little as 10 days – combatting the problem of slow payers.

Premium Credit is working with ICAS to provide members with access to FeePlan, an exclusive fee funding facility for accountants and their clients. If you would like to find out more, visit the Premium Credit page.

About the author

Steve Taylor has with 30 years' experience in the lending and payments sector, providing leadership for the non-insurance product portfolio at Premium Credit, including independent schools, sports memberships and of course, professional fee funding.

Topics

  • Practice hub

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