Businesses feel the squeeze as late payments increase

70% of businesses report that debtors have leapt from 30 to 60 days while a further 30 % are now taking 90 days and more to settle bills according to a survey conducted by leading accounting software developer, IRIS

Mature accounting software, with antiquated debt recovery processes, is causing cash flow problems in small to medium sized businesses. Those using out-of-date accounting packages are being advised to take immediate action and to automate the debt chasing process to help beat liquidity problems caused by late payment.

According to research carried out among c300 UK SMEs by leading accounting software developer, IRIS Accounting and Business Solutions, 59% of those surveyed think that the credit crunch is having a negative effect on their businesses and 52% say that debtors are taking longer to settle their bills. 70% of respondents reported that debtors had leapt from 30 to 60 days while a further 30 % were now taking 90 days and more to settle bills.  

As the global recession deepens, IRIS is advising companies to focus on a single line of the balance sheet - cash flow - and review the debtor book daily.

Paul Sparkes, Product Director with IRIS Exchequer commented: "Businesses used to start by trimming expenses and trying to grow sales: now they need to focus upon liquidity. Many of the older systems do not have automated debtor chase / recovery processes and it is essential that debtors and overdue balances are kept to a minimum."

Interestingly, 74% of businesses questioned claimed that their debtors were taking longer to pay, compared to only 45% of users of the IRIS Exchequer business and accounting software solution. 

A new generation of Business Intelligence tools is changing the way in which Finance Directors keep their fingers on the pulse and they are helping to make it easier to make decisions based on more complete, complex and timely information. 

A good example of Business Intelligence working within Credit Control is the use of pro-active business alerts that are automatically triggered if a customer exceeds the credit limit or a payment is overdue. This new level of technology enables a company to monitor and manage every aspect of the business without incurring any additional resource overhead and advances mean that reports can be viewed on mobile devices such as PDAs and from e-mail applications such as Microsoft Outlook. Continually updated and real-time financial data on a dashboard become part of the everyday routine and the need to produce long and detailed reports is reduced.

Rather than notifying the Credit Controller or Finance Director, prompting manual intervention, the process is completely automated so if an invoice is overdue by a couple of days, the system will automatically send a copy of that invoice and statement to the customer via email. If the invoice remains unpaid, then the Credit Controller or FD can be alerted. If, however, it is paid, no action needs to be taken.

The research also revealed a disturbing move towards some opportunistic customers juggling their accounts by sending their suppliers part settlement of overdue invoices in an attempt to disrupt the Finance Department and win extra time. 17% of those respondents said they are seeing an increase in part payments and where mature accounting systems are still in use, this delaying tactic can work as they do not have the functionality to deal with the part payments.

Sparkes added: "In a recession, Cash is King.  While an old saying, it is one that is growing in importance in UK boardrooms and it holds the key to survival in the current economic climate. It is worth checking to see whether your accounting package offers smart tools that deal with part payments and automatically applies interest charges to customers who are exceeding the agreed terms. These are fast to use and most importantly, they are completely accurate."