Not so merry Christmas – tis the season for late payments

Every year when Christmas looms, smaller companies await in trepidation while bigger companies bring out the annual holiday excuse to not pay their dues on time.

Why do payments come late this time of the year? There are a number of reasons. Some companies might want to delay payment until 2019 for tax reasons. And most companies also close down between Christmas and New Year’s Day, making it impossible to get any movement on payments during that time.

Even if businesses do not close down, employees, especially the accounts department, will be on vacation, making it hard for smaller companies to get the answers and the payments they need.

Tracy Ewen, managing director at IGF Invoice Finance, told Fresh Business Thinking the Christmas period and the first weeks of January are often a critical time for small businesses as most decision makers are on holiday. This leads to payment due dates slipping as cheques are not signed and small businesses often experience real problems with cashflow.

Besides that, the postal system is always overloaded this time of year, which means cheques that are mailed out will be delayed due to the high volume of holiday mail.

Small businesses are facing a total cost or bill of as much as £6.7 billion, a cost of collections that is up from an estimated £2.6 billion last year, according to research by Bacs Payment Schemes Limited (Bacs), part of leading UK retail payments authority Pay.UK.

This is unfortunate for smaller business as they will struggle financially at a time when they should be able to concentrate on planning and preparation for the year ahead. The extended closure of so many businesses over the festive period worsens the problem and for some businesses puts them into real financial difficulty while they wait for debtors to reopen and settle their bills.

Businesses can take the initiative to prevent a Christmas slowdown in invoice collection by taking control of their part of the process and setting an example to their debtors. Examples are invoicing their clients accurately and making sure that they are billing the correct entity with the correct details.

After a sale takes place, businesses should not be afraid to follow up with the client. Often, the longer a debt goes unpaid, the more likely it will remain unpaid.

Also, businesses should maintain open and close relationships with their clients, which will in turn make it easier to manage the payments process. A good relationship with the clients will also allow businesses to keep track of the financial health of the client, and alert them to irregularities or unusual payment practices. The bankruptcy of construction giant Carillion has produced a lot of horror stories of smaller businesses suffering from Carillion’s poor payment practices. But a supplier who notices a trend of late payments can choose to stop supplying to the company that suddenly starts paying late.