During these difficult financial times it would seem that some businesses have been deliberately delaying payments to creditors by making them re-issue invoices. In fact, according to a study conducted by Creditsafe half of UK businesses who accept cheques as a form of payment believe that customers have made deliberate mistakes (such as writing the incorrect amount or date or failing to sign the cheque).
The research uncovered a large range of excuses for late payment with some of the more outrageous reasons credit controllers have received from debtors to re-issue invoices being;
• “I’m too important to read my post, so why would I know you billed me”
• “I’m going through a divorce, please issue the invoice to my soon to be ex-wife”
• “The finance director had a heart attack due to stress and can’t sign cheques in hospital.”
• “The customer couldn’t get into the office to get the cheque book because the locks had been superglued by travellers. The cheque was for £18,000.”
• “My wife has gone off to look after the grandchildren for a week and taken the business cheque book with her.”
• “The goods were signed for in a different colour pen to the one our warehouse manager normally uses, so we have to check it was definitely him who signed for the merchandise before we pay you.”
• “My husband has my cheque book and he has now been put in prison.”
• “Our accounts lady is off at the moment as her cat died.”
Whilst these excuses might seem outrageous (verging on ridiculous), businesses rely on the business to business credit in order to survive. For this reason withholding payment can have serious detrimental effects on cashflow which could lead to insolvency.
David Knowles, Business Development Director, Creditsafe said: “Unscrupulous accounts payable teams and finance directors are using every trick in the book to prevent paying invoices on time. Ensuring the reissue of invoices is, unfortunately, often an effective tactic to delay payments, but is extremely poor business practice and ultimately flouts a moral obligation to pay on time for goods or services that have been purchased and probably used. Crucially, the late payment of invoices prevents the efficient flow of monies through the supply chain, which is vital if businesses are to maintain their cash flow at a time when credit is still difficult to source.
There are however a couple of simple steps that credit controllers can follow in order to reduce the risk of late payments and ultimately bad debt:
• Increase debt collection activity (such as threatening legitimate legal action and proceedings for recovery).
• Employ a credit referencing agency so that you can access company credit reports and research potential customers prior to signing a contract.
• Move to pre-payment for some customers.
• Increase (or introduce) incentives for early payment.
• Decrease payment terms within the standard terms and conditions.
• Take out or extend the level of trade credit insurance.
• Employ a debt collection agency to recover debt