- The Effects on Business of Late Payment of Invoices
Late payment of invoices can have significant effects on businesses, impacting their cash flow, profitability, and overall financial health. In this article, we will explore the various consequences that businesses may face when dealing with delayed payments from their clients or customers.
1. Cash Flow Problems
One of the most immediate and obvious effects of late payment is the negative impact on cash flow. When invoices are not paid on time, businesses may struggle to meet their own financial obligations, such as paying suppliers, meeting payroll, or investing in growth opportunities. This can lead to a domino effect, causing a ripple effect throughout the entire business.
2. Increased Borrowing Costs
In order to bridge the gap caused by late payments, businesses may be forced to rely on external sources of funding, such as loans or credit lines. However, this comes at a cost. Increased borrowing costs, such as interest rates or fees, can eat into a company’s profits and erode its financial stability over time.
3. Strained Supplier Relationships
When businesses are unable to pay their suppliers promptly due to late payments from customers, it can strain the relationships with those suppliers. Suppliers may become reluctant to extend credit or offer favorable terms in the future, potentially leading to higher costs or limited access to essential goods and services.
4. Missed Opportunities for Growth
Delayed payments can hinder a business’s ability to invest in growth opportunities. Whether it’s expanding operations, launching new products or services, or investing in marketing and advertising, the lack of available funds can significantly impede a company’s ability to seize opportunities and stay competitive in the market.
5. Increased Administrative Burden
Chasing late payments can be a time-consuming and resource-draining task for businesses. The process of following up with clients, sending reminders, and potentially engaging in legal proceedings can divert valuable time and energy away from core business activities. This increased administrative burden can negatively impact productivity and overall efficiency.
6. Damage to Business Reputation
Consistently late payments can harm a business’s reputation in the marketplace. Suppliers, partners, and potential customers may view a company that struggles with timely payments as unreliable or financially unstable. This can lead to a loss of trust and credibility, making it more challenging to attract new clients or maintain existing relationships.
7. Financial Instability
Ultimately, the cumulative effect of late payments can push a business towards financial instability. The inability to manage cash flow effectively, access affordable financing, or maintain positive relationships with suppliers and customers can create a precarious financial situation. In extreme cases, businesses may face insolvency or bankruptcy.
Conclusion
Late payment of invoices can have severe consequences for businesses. From cash flow problems to damaged reputation and missed growth opportunities, the effects can be far-reaching and long-lasting. It is essential for businesses to implement robust credit control procedures, establish clear payment terms, and proactively address late payments to mitigate these risks and ensure their financial stability.
- Michael J. Lonsdale enters administration
Good credit rating
Firmly established over 35 years
Approx. 240 employees
Positive Net Assets
You don’t always see it coming so it is important to have companies pay your invoices on time to reduce the value of any potential bad debt.
Michael J Lonsdale, one of the UK’s largest M&E contractors, has appointed administrators.
The company, which has offices in London and Langley, Berkshire, was founded in 1986 and turned over more than £2.9bn in almost 40 years of trading, working on major project such as the 51-storey 8 Bishopsgate tower and the Paddington Cube in London.
It turned over £191m in the 12 months to 30 September 2022, making a £2.5m profit – down slightly from £2.7m a year previously. At the time independent auditors for the company said they could see nothing which cast significant doubt on the company’s solvency.
However, on Monday (2 October) the company collapsed, appointing insolvency practitioners from Begbies Traynor to sell-off the company’s assets in a bid to recoup money for creditors.
Michael J Lonsdale’s approximately 240 staff were told in an email from the company’s management, which asked them to return company IT equipment. Administrators are expected to make most of the company’s staff redundant.
Michael J Lonsdale was the 77th largest UK construction company, according to the CN100 2023, and the seventh largest M&E contractor according to the CN Specialists Index 2022. It operated in sectors including pharmaceuticals, commercial offices, fit-out, education, hotels and leisure, rail and data centres.
In financial results for the year to 30 September 2022, published in July, the group said: “The post-Covid economy has brought its own challenges with over inflation resulting from an increase in utility prices and the war in Ukraine.
“Michael J Lonsdale has approached these economic conditions by adapting internal approaches to ensure they are robust and aimed at protecting the margin on jobs and working closely with the supply chain to adhere to project programme”.
The group was working on ongoing projects including the University College London Queen Square Institute of Neurology, which is due to be completed in July 2024.
- Rising Interest Rates
Rising interest rates can have a significant impact on credit control.
When interest rates rise, it can lead to increased borrowing costs and cash flow problems.
This can make it more difficult for businesses to manage their cash flow and avoid bad debts.
However, there are also some benefits of higher interest rates.
For example, the amount of statutory interest you are legally entitled to for late payments increases.
The Late Payment of Commercial Debts Act gives you the statutory right to claim interest from your customers in the event of late payment of a commercial invoice.
The amount of late payment interest you can legally charge is 8% plus the Bank of England base rate for business-to-business transactions which currently sits at 5.25%, so the late payment interest you can charge would be 13.25% of the total invoice value, up from 13%
- Pandemic is forcing Companies into Late Payment clampdown
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