As Christmas spending reaches its peak, payment services provider Streamline has come up with some tips for retailers to make the most of the year’s busiest season.

1. Contactless Christmas – More customers now have the capability on their credit or debit cards to pay via contactless terminals. Once the card has been tapped against the contactless reader, it normally takes less than one second to complete the payment. The whole transaction is significantly faster than cash or chip and PIN, reducing queues at the tills during this busy period.
2. Speedy spending – A broadband connection not only speeds up payment processing with a broadband connected card payment terminal but it frees up your phone line if customers want to call you whilst payments are being processed. Critical at this time of year when good customer service goes a long way.
3. S’no’w guarantees – Heavy snow fall last year created chaos for Christmas deliveries. If you deliver products or services, keep your customers informed about timings and if snow does fall, contact your customers to update them on revised delivery schedules.
4. Stock’ing’ fillers – Think ahead and plan your stock levels – what’s likely to sell quick and what products are less in demand that you can save you space on? Unexpected snow not only impacts deliveries to your customers but also stock so check delivery schedules with your suppliers.
5. Keep it merry – Christmas can be a stressful time of year but a reliable and cheerful service is always well received by customers and can alleviate some of the pressures that Christmas brings to you and your customers.

The number of UK firms spending more than a quarter of their time chasing outstanding payments from customers has risen dramatically in 18 months, according to the latest research by specialist invoice finance provider Bibby Financial Services.

The survey of small to medium-sized enterprises has revealed that 14 per cent now spend more than a week a month chasing customers for payment – up from just two per cent in March 2010.

Chasing customer late payments loses UK businesses countless working days and it is thought this could be costing the economy £4.4billion every year.

The research was carried out as the Government considers implementing a new European Directive next year which sets the standard payment term at 30 days and is designed to reduce the length of time businesses have to wait for payment. It will also allow small businesses to charge an extra eight per cent on their bill if the customer breaks the payment terms. Business minister Ed Davey said the move would address some of the concerns expressed by small business owners over payment terms and late payment.

In terms of industry sectors business services are one of the worst affected with 16 per cent spending more than a week each month chasing payments – this will be of particular concern as it is up from zero last year.  The rate among construction firms has almost doubled to 12 per cent compared to seven per cent in 2010. But there is better news for the manufacturing sector where just three per cent of firms spend over a week a month chasing customers for payment which is down from eight per cent last year.

Across the regions a real north-south divide emerges as more than a quarter, 27 per cent, of businesses in the North East, which has been hit badly in the economic downturn, spend more than a week a month chasing payments which has increased from zero.

But in the South East, traditionally one of the most prosperous areas of the country the rate is much lower at 10 per cent.

Edward Rimmer, UK chief executive for Bibby Financial Services, said: “It is a real concern to see so many more businesses having to spend longer chasing payments, which is time that could be better spent building their businesses.

“The introduction of the EU directive would be a welcome move to tackle the late payment issue and would provide more leverage to businesses owners in demanding payment for their hard work, which in turn will enable better control over their cash flow. However, in a competitive and challenging environment many business owners are reluctant to jeopardise existing relationships with customers or risk losing business by exercising their rights to charge interest on overdue payments, particularly during these tough trading times. In addition, smaller businesses just do not have the time or resources to keep chasing late payers let alone go down the legislative route to recoup payments.”

“However, there are some solutions to help deal with the late payment issue and free up cash flow. Companies must ensure they are in control of their finances and then look at all the cash flow options available. If they cannot afford to employ an internal credit control function then they could consider invoice finance, which not only frees up cash flow but takes away the burden of chasing late payment and allows owners and managers to focus on other important core aspects of managing and growing their businesses.

“The small and medium sized businesses in this country are a vital component in the engine of the economy and as such it is crucial that they are able to run as smoothly as possible otherwise the long-awaited recovery may itself be delayed.”

A worrying lack of credit awareness amongst the UK ’s small and medium sized business community has been revealed by new research from Experian, the global information services company.

Experian’s survey of nearly 700 UK small businesses found that 71 per cent did not check their customers’ credit status, exposing them to a greater risk of being paid late or not being paid at all.

The survey also revealed that 39 per cent of small businesses did not know what a credit score was, while 61 per cent have never checked their own score.  Businesses that do not check their scores are unlikely to be aware of any issues until they lose out on a contract with a potential new customer, are refused materials from a new supplier or are turned down for finance.

Credit scores provide an assessment of a business’s financial health, with a low score implying that a business is more likely to fail. According to Experian, for small businesses many low scores can stem from a lack of detailed data about the business or a failure to file complete or accurate information, rather than underlying financial insecurity.

A low credit score can affect a business’s ability to access finance or attract new customers, while it could also force suppliers to impose more stringent trading agreements.  Small businesses tend to rely on a small pool of suppliers and customers, and a single customer loss or change in terms can have a large impact on the financial health of the business.

Simon Streat, managing director of Experian’s UK SME business, said: “Two thirds of small businesses may be blind to their credit scores, but their larger customers, suppliers and banks certainly won’t be.

“Failure to address credit problems may put small and medium sized businesses at a big disadvantage, as many organisations will be put off engaging with a company that has a low score. It is important for businesses to monitor their credit score on a regular basis to ensure it reflects their situation accurately and to be able to take action to resolve any issues that are highlighted.

“Simply taking the steps to check the credit score of firms before doing business with them is straightforward and affordable, and it could make all the difference.”

Factors such as incomplete accounts, a location change, the move from non-limited to limited status, or mergers and acquisitions, can all influence credit scores.  By engaging proactively with credit reference agencies, firms will be better equipped to take action to boost their score and improve the external perception of their business.

Not all customers are good for your business.

With so much focus on growth, all eyes are on small businesses to make it happen. The ability to find and acquire new customers is a key element in the growth process, but Experian’s research has identified this as one of the main areas of concern for small businesses.

Finding new customers can be a challenge, while finding profitable customers is another. However, businesses are operating in a riskier environment than they would have been used to in the early part of this century, and the biggest challenge today is finding customers that will continue to pay their bills.

Experian’s latest data on late paying businesses reveals the last two quarters of 2010 saw a deteriorating payment trend among businesses, while the first quarter of 2011 saw no signs of significant improvement as UK businesses continued to contend with challenging trading conditions.

While the largest businesses (500+ employees) remained the worst late payment culprits, smaller firms with three to ten employees – traditionally among the fastest payers – saw the biggest deterioration in payment performance as greater numbers struggled to pay their bills.

This highlights that the current threat of exposure to bad debt is a very real one. Businesses face reputational as well as financial risk when they target failing businesses. If you knew in advance that a potential customer wasn’t going to pay their invoice, would you still target that them? Would you still go after their business?

Small firms looking for new business clients should not simply target every potential prospect in their region without delving deeper into the impact those businesses could have on their own operations. Taking on the wrong kind of customers could have a negative effect on their own businesses and ultimately lead to its own demise.

While intelligent marketing information is still key to highlighting those prospects most likely to buy, credit risk information is just as important to show those that are most likely to pay. The financial losses and to failing businesses could well create a knock-on effect that causes their own business to fail.

Not every single business classed as risky will fail, as many will take some steps to change the path they going down.

So, the first step is to take them out of the equation. Through the use of marketing data that has been pre-screened against credit risk data, those unprofitable, high-risk businesses, including those that are likely to fail in the coming year, can be removed from an organisation’s databases and marketing prospect lists. This will enable small businesses to ensure their resources are more focused and effective. It will in turn reduce unnecessary expense marketing to unsuitable prospects and also help avoid the costs associated with expensive sales visits to small businesses that will end up proving costly in the long run.

However, while this can prove highly effective in avoiding the businesses most likely to fail within the next 12 months, it is only the first step. There is a more intelligent way of using pre-screened data.

Small businesses can use this data to delve deeper into the higher risk companies. By targeting them with payment terms and conditions that are more appropriate to them or by agreeing up front deposits before goods or services are despatched, businesses will be able to continue to take on new customers, but at lower risk.

It is worth bearing in mind that not every single business classed as risky will fail, as many will take some serious steps to change the path they are going down. By taking advice, reviewing current operations and adopting best practice, some of these struggling companies will manage to turn their fortunes around. However, until the business does turn itself around, it is still a risky prospect.

If the status of a high risk business later changes and it begins to grow, it could become a profitable customer in the future. Experian’s analysis shows that there is a lesson for all firms in terms of creating and enforcing robust credit management and collection policies so that companies do not leave payment to chance. Goodwill goes a long way in business relationships, but ultimately firms need to pick up the money that they are owed promptly or they risk encountering serious cash flow issues.

Content Source: Simon Streat. Managing Director of SME, Experian UK&I

 

New figures show that HMRC is increasingly rejecting applications to defer tax payments through the “Time to Pay”.

The number of new “Time to Pay” arrangements agreed by HMRC fell by 43% over the last twelve months from 57,800 in Q1 2010 to just 32,900 in Q1 2011. The combined value of the tax payments deferred fell by 40% from £890m in Q1 2010 to just £530m in Q1 2011.

Over the same period, the proportion of applications rejected rose by 50%, with 1,130 companies seeing their applications under the scheme rejected each month in the first quarter of this year.

Payment terms are also becoming more stringent.  In the first quarter of 2010 HMRC offered 14% of successful applicants a payment plan of ten months to a year, but only 10% of successful applicants during the first quarter of 2011 were offered similar terms.   61% of “Time to Pay” agreements are now for a payment schedule of just three months or less.

“Time to Pay” was designed by HM Revenue & Customs to allow viable businesses to defer tax payments during the downturn. It has been seen by many business organisations as one of the most effective of the programmes designed by the Government to stimulate the economy during the downturn.

The latest economic data shows that the economy grew by just 0.5% in the three months to the end of March, just making up for ground lost in the last quarter of 2010.

Philip White, Chief Executive of Syscap comments: “We may not technically be in recession, but if you look at the six month trend, growth is flat-lining, so we have to cross our fingers that a double-dip recession will be avoided.”

“These new figures show that HMRC is rapidly winding down the “Time to Pay” scheme at a time when companies are clearly still struggling.”

“HMRC is being far tougher about deferring tax payments – applicants that might previously have been successful are now being rejected.”

Philip White explains that as well as battling the sluggish economy, companies have also been put under pressure by the increase in VAT, which rose to 20% in January 2011 and has strained business cash-flow.

Philip White says: “Not only are companies faced with the rise in VAT, but unincorporated businesses such as partnerships and the self-employed also need to make sure that they have the cash available to make the six monthly tax payment due at the end of July.”

Syscap says that their customers have reported significant changes introduced by HMRC to the “Time to Pay” process, including asking businesses to apply for a bank loan or even make a tax payment with a credit card, incurring an extra card handling charge, before they become eligible for assistance through the scheme.

Philip White says: “HMRC may need to reconsider their decision to wind down the “Time to Pay” scheme. The economy remains sluggish and we have yet to feel the adverse impact of the public sector cuts, which only came into effect at the beginning of April.”