The Late Payment Problem
Every time Britain falls to recession, and it’s happened at least three times during my career, organisations grow more hesitant about spending their money.
20th April 2015 | Andrew Chisem: Director, Rolton Group
This might translate as a slowing of investment in new technology, stalling plans for expansion, or any number of other belt-tightening measures. As the economy recovers, however, the market begins to relax and money starts flowing more freely; everything looks positive and professionals breathe a sigh of relief as the constrictions put in place during hard times loosen up. The problem is that the bounce back doesn’t always occur with the same speed as the downturn.
In this instance I’m referring to issues relating to the late payment of fees for professional services, which has long been a topic of discussion and frustration within the industry. What appears to happen, though I should be clear that it is by no means in every case, is that the process of payment for services can become protracted when the sector falls quiet, and then fails to pick up speed again when the outlook is looking healthier.
For companies robust enough to withstand the wait, this problem is not so much a crisis as an irritating undercurrent. Indeed, at Rolton Group, sound financial management and respect for our sub-contractors means we have a strong base of suppliers with whom we have worked for many years and whose fees we look after before our own to ensure they continue to thrive. For smaller firms who lack those strong ties in the wider industry, though, the implications of having to wait months to be paid for their work can be crippling.
Without reliable cash flow, small companies struggle to stay afloat because they can’t sustain operations without their expected income; paying staff their wages, for example, is a non-negotiable monthly expense, and if small firms are left waiting for fees this could be enough to signal real trouble within a short timeframe. Admittedly, there has been a culture shift away from the dark days of ‘pay-when-paid’ or even ‘pay-if-paid’, and fast-track adjudication has been implemented to ensure the swift resolution of disputes relating to fees, but still the challenge of late payment persists.
This issue is worth particular attention in the current economic climate because businesses are trying to balance expansion with maintaining a healthy cash flow as the country returns from recession. The lag between earning a fee and it hitting the bank account should be factored in to a company’s estimations as standard, but if cash becomes tight due to delayed payment on work completed serious problems can emerge very quickly should a firm lack the financial reserves to support themselves through the wait. This is especially the case post-crash because banks are far less willing to give short term extensions on cash flow, and history is replete with examples of successful businesses that have crashed and burned startlingly quickly because of this very issue.
Now more so than ever it is crucial that we make sure to look after our suppliers to ensure everyone is able to compete as the market normalises once again. Ultimately, it’s a matter of fairness: when you buy your groceries from the supermarket, you don’t wait until you’ve eaten them all before heading back to the shop to pay. We may be in a markedly different sector but the point stands, and companies who provide excellent services deserve fair and prompt payment for doing so.