Oldham insolvency expert welcomes plans to clamp down on late payment

Oldham insolvency expert Allan Cadman

Government moves to clamp down on late payment for small businesses have been welcomed by an Oldham insolvency expert.

Allan Cadman, who is North West chair of the insolvency and restructuring trade body R3, has backed proposals to give the Office of the Small Business Commissioner the power to order businesses to pay in good time and issue fines if they do not.

He is also warning North West SMEs to look out for late payments from customers to avoid becoming a victim of the so-called ‘domino effect’, where one business collapses and brings down others in its wake.

Allan, who is also a partner at insolvency firm Poppleton & Appleby, says invoices being settled later than usual can be one of the clearest indicators of business distress.

“Late payment of invoices, whether deliberate or otherwise, is one of the biggest factors in North West businesses getting into financial trouble. 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 can set itself up for cashflow problems if payments don't materialise as expected,” he explains.

"This puts unnecessary strain on its finances, and can stop it investing in new services, taking on new opportunities, or even having enough cash in the bank to cover day-to-day costs. While it can be sensitive or difficult to investigate what’s happening within larger client companies, not doing so could create bigger problems further down the road.

“With the technologies now available, there is no legitimate reason why straightforward invoices can't be paid on time, and we welcome any moves that will help ensure more businesses meet their responsibility to pay what they owe on time.”

The new powers being proposed for the Small Business Commissioner also include the ability to compel companies to share information on how they manage their invoice systems, and to launch investigations into businesses suspected of bad payment practices.

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.

Allan Cadman adds: “Insolvency practitioners working with distressed businesses regularly see examples of the ‘domino effect’, especially when an SME has become over-reliant on the work it does for a single large client.

“Directors should get qualified advice as soon as they become aware of any potential problems arising, so they retain the widest possible range of options to safeguard their own operations if their fears turn out to be well-founded.”