Zero tolerance for late payment

One in six UK companies will immediately terminate their contracts with customers who pay late, a survey by the Better Payment Practice Group has found.

The poll asked businesses how many times a customer would have to pay late before they terminated the contract. Of the 408 respondents, 16 per cent said that they would stop working with the customer after one late payment and 67 per cent would terminate the relationship if the customer pays late between one and four times.

Small companies with 10 to 49 employees were least tolerant of late payment, with 23 per cent of respondents stating that they would terminate the contract after the customer paid late once.

Says Nicholas Bojas, member of the BPPG and Senior Policy Adviser at the CBI: “Too many businesses in the UK are relying on extended credit from their suppliers to sustain their cash flow and are not giving proper consideration to the potential damage they are inflicting on these important relationships.

“As the research shows, two thirds of businesses will terminate a contract if a customer pays late up to four times, so late payers run a real risk of being cut off by their suppliers.

“However, the survey found that 33 per cent of businesses would allow the customer to pay late five or more times before terminating the relationship. The BPPG would urge these firms to consider the risk to their cash flow of condoning late payment and advise them to strengthen their credit management procedures to protect themselves from tardy payers.

“All businesses must recognise that a commitment to prompt payment can be a powerful aid to better buying and will produce closer, more cooperatve partnerships between customers and suppliers.”