"Directors should be acting quickly to get qualified advice as soon as they become aware of any potential problems arising"
Eleanor Temple is backing the launch of a consultation focusing on giving greater powers to the Office of the Small Business Commissioner to support SMEs in resolving their late payment problems.
In the current challenging times, Ms Temple advised businesses in the region to be on the lookout for their invoices being settled later than usual, and/or outside the agreed period, as this can be one of the clearest indications of potential business distress and could potentially lead to them facing financial problems of their own in turn.
Eleanor Temple, who is a barrister at Kings Chambers in Leeds, says: “Late payment of invoices, whether deliberate or otherwise, is one of the key factors pushing businesses in Yorkshire into financial difficulties, and while a good deal of progress has been made in toughening the rules around late payment in recent years, there’s still much more to be done.
"When a company is not paid in advance for goods or services, it essentially acts as a lender for its clients, but it does not have the protection that a secured lender receives, and this can lead to cashflow problems if payments don't materialise as expected.
"This puts unnecessary strain on the finances of businesses, and can stop them investing in new services, taking on new commercial opportunities, or even having enough cash in the bank to cover their day-to-day costs, which can threaten their very viability.
“With the technologies to which all businesses have access, there is no legitimate reason why straightforward invoices can't be paid within the allotted time period, if not immediately on receipt, and we strongly welcome any moves that will help ensure more businesses meet their responsibility to pay what they owe, on time and in full.”
The new powers being proposed for the Small Business Commissioner include the ability to order businesses to pay in good time and issue fines if they do not; to compel companies to share information about how they manage their invoice systems; and the power to launch investigations into businesses where bad payment practices are suspected.
Figures from the Department for Business, Energy & Industrial Strategy suggest that £23.4 billion worth of late invoices is currently owed to small firms across Britain, while according to the Federation of Small Businesses, around 50,000 SMEs close each year due to late payment.
Ms Temple continues: “Finding that invoice payments are taking longer to come through should be a real warning sign to Yorkshire business owners - while it can potentially be difficult or sensitive for them to investigate exactly what’s happening within much larger client companies, not taking such steps could create bigger problems further down the road.
“The ‘domino effect’ of one struggling business affecting the fortunes of many others is a regular situation seen by insolvency practitioners working with distressed companies, especially when an SME has become over-reliant on the work it does for a single large client.
“Directors should be acting quickly to get qualified advice as soon as they become aware of any potential problems arising, so they retain the widest possible range of options for safeguarding their own operations if their fears turn out to be well-founded.”