in Business

The state of late payments

The culture of late payments has become so ingrained in the UK that spending time, money and resource chasing payments has, for many, become business as usual.

Take a look at the graphic below to see, in numbers, the state of late payments in the UK, how this compares to other European countries and if with new legislation, there is any sign of things improving.

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in Business

Open banking and the rise of bank-to-bank payments

We’re reaching a tipping point for bank-to-bank payments and PSD2 might just push us over the edge.

Direct Debit, the most common means of collecting bank-to-bank payments, was devised in the 1964 by a Unilever executive, as an automated way to collect recurring, variable payments from ice cream vendors, without having to ask permission each time.

  • In 2016, Direct Debit made up 20% of all 122 billion cashless payments taking place in the EU (source: European Central Bank, Payment Statistics for 2016).
  • Direct Debit volumes in the UK reached 4.2 billion in 2017 (more than double what they were at the turn of the millennium), representing a 3.8% growth on 2016 (source: Bacs Payment Schemes Ltd, 2017).

There are several factors that have contributed to the growth of Direct Debit in the UK and Europe:

Better access
Third-party providers like GoCardless have opened up access to Direct Debit to thousands of SMEs in the UK who could not previously meet the revenue and bond criteria set out by banks. These providers act as a merchant account for businesses, developing and managing banking relationships on their behalf.

Ease of use
More commercial providers offering Direct Debit has led to significant improvements in user experience. While the former paper-based Direct Debit system was clunky and disconnected from the rest of a business’ workflow, GoCardless now gives merchants a simple, automated way to collect payments, through an app within their billing or CRM software, through an online dashboard or by building their own integration with our REST API.

Macro-economic trends
The growth of the ‘subscription economy’ in the last decade has led businesses to seek payment solutions more suited to a recurring revenue business model. Bank-to-bank mechanisms like Direct Debit allow these businesses to collect recurring payments against a subscription plan with a single mandate, while reducing involuntary churn and transaction costs (payment failure rates and transaction costs are lower for Direct Debit than for cards).

So, why doesn’t everyone use Direct Debit?

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in Business

Unpaid invoice? How to have THAT conversation with your client

Accountancy firms might spend their days advising clients on their finances, but even they are aren't immune from the problem of late payments. The average professional service firm is owed £54k in outstanding payments, according to new research by data specialists Dun & Bradstreet.

Having a challenging conversation with your client about money isn't most people's idea of fun, but most small firm leaders will need to do it at some point. With that min mind. we've compiled some tips to help you chase your client’s unpaid invoice (without chasing your client away).

Start the conversation (early)

When chasing an unpaid invoice, it’s important to remember that payment is already late. So, don’t procrastinate. By making contact with your client as soon as the invoice becomes overdue, your firm may be able to close the payment gap by presenting more flexible payment options, such as changing the payment date or offering instalment payments through Direct Debit. Whilst alternative payment routes don’t guarantee payment, they do move the dial in the right direction.

Structure the conversation (clearly)

Often, a client who is trying to delay payment will wait until payment is due before advising you that they didn’t receive your invoice.

1-3 days late

Your firm has delivered a service, your client hasn’t paid for it and all you can hear are crickets. So, it’s easy to think that non-payment is intentional, but it may not be. Genuine oversights happen all the time, so give your client the benefit of the doubt (especially first-time offenders).

Once the invoice payment deadline has passed, a junior staff member from your Accounts department should give your client a gentle nudge by sending a firm – but friendly – email with a copy of the invoice attached. The email should say that payment is overdue and your client must arrange payment as soon as possible or contact your firm if they’re in financial difficulty. More often than not, a subtle reminder is all that’s needed to spur an otherwise motionless client into action.

7 days late

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in Announcements, Business

Protecting our customers’ data: GDPR and the GoCardless Privacy Programme

Protecting our customers’ data is a priority for GoCardless. With the General Data Protection Regulation (GDPR) coming into effect in May, we welcome the opportunity to deepen our commitment in the area of data privacy.

We are making changes to our policies, processes, products and systems to ensure that we comply with the Regulation and continue to put data protection first. We’re also committed to helping our customers meet their requirements under the Regulation.

GDPR: A new data privacy landscape

Advances in technology over the last decade have led to the proliferation of personal data. More organisations are sharing and collecting different types of personal data than ever before: from IP addresses through to health data, purchasing behaviour, viewing preferences and more.

  • From 25 May 2018, organisations who handle personal data will need to meet new legal requirements, as the General Data Protection Regulation comes into effect across the EU (replacing the 1995 EU Data Protection Directive).
  • On the same day, the UK’s Data Protection Bill will pass into law, as the Data Protection Act 2018, effectively implementing the GDPR into UK law.

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in Business

5 common excuses for late payments (and how to respond to them)

If you’re delivering services on time to your clients, it can be frustrating to be met with excuses for late payment, which typically fall into one of four categories: systems error, supply chain, company crisis or dispute.

Here’s five of the most commonly-used excuses for not paying invoices on time, along with our tips on how to respond, so that you get the money in your bank ASAP.

Systems error

“We haven’t received your invoice”

Often, a client who is trying to delay payment will wait until payment is due before advising you that they didn’t receive your invoice.

Response: Send your client an email asking for confirmation of receipt of your invoice – for example, seven days after dispatch. Or you can ask your client to send you an email acknowledgement upon receipt of your invoice. Either way, you’ll have time to re-send your invoice, if necessary.

You can also send a reminder email to your client one week before your invoice is due for payment. This will give you an electronic paper trail, which will prove useful if you later have to take formal steps to recover payment.

If your invoices are regularly going astray, you may want to switch to Direct Debit, which prevents late payments by automating your firm’s payment process – removing the hassle of your clients having to manually pay your invoices.

“Your cheque is in the post”

Nowadays, it’s unlikely that your firm is paid by cheque, but the general principle is that “payment is on the way.”

Response: Ask your client for proof of postage or ‘remittance advice’ (a letter from their finance department proving that payment has been made).

Alternatively, you can request that your client cancels the first cheque and sends another one by first class recorded delivery.

On the other hand, why not offer your client an online, automated payment option like Direct Debit? Funds will be instantly debited from your client’s account, leaving your team to focus on your work (rather than invoice-chasing).

Supply chain

“We haven’t been paid by our clients yet”

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in Business

Duty to report on payment practices legislation: gaining traction or falling flat?

The new legislation on card surcharges that came in January 2018

A survey by MarketInvoice on 80,000 invoices from UK businesses revealed that 62% were paid late in 2017, up from 60% in 2016. On average, SMEs are paid 18 days late, with £21.1 billion outstanding in late payments annually.

Enter the duty to report on payment practices and performance legislation. This is in effect an extension of the Prompt Payment Code, which was established in 2008 and under which many large companies were already voluntarily publishing their payment policies online and following standards for payment practice.

The new legislation, however, means that all companies over a specified threshold (turnover, balance sheet total, number of employees) need to report on their payment record. The Government is taking further action to support SMEs with a new complaint service on late payment and the newly appointed Small Business Commissioner.

Are things looking up?

So, are we seeing real, tangible results?

“Whilst the regulations came into force in April last year, the reporting obligation is linked to each company’s financial year, so not every company within scope was required to take action immediately. It’s also not entirely clear that every company with a duty to report is fully aware of that fact, as I wouldn’t say the regulations have been particularly widely publicised,” says Oliver Kidd, Senior Associate, Stevens & Bolton.

The recent collapse of Carillion highlights the size of the task at hand. The company’s Supplier Payment Guide says that it is “committed to paying our suppliers in accordance with agreed payment terms. In order to avoid unnecessary delays and any processing difficulties, it is essential that processes are followed and consideration should also given to some of the tools we have to help improve payment performance.”

There then, somewhat predictably, follows a long list of processes. Rumours had been swirling for some time that Carillion was a late payer of bills. Worse still, creditors of the company could now end up with less than a penny in the pound, official court documents revealed.

A High Court witness statement submitted by the interim Chief Executive, Keith Cochrane, on the company’s liquidation notes the “insolvency recovery for creditors in the event of a group-wide liquidation would be an average of between 0.8p in the pound and 6.6p in the pound”.

Federation of Small Businesses National Chairman Mike Cherry, said: “It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.”

He added that these unpaid bills may well go back several months. “I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid. Sadly, these kind of poor payment practices are all too common among some big corporates. Perhaps if they weren’t it would be easier to spot the warning signs of a huge company in financial trouble.”

What are the public findings so far?

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in Business

Card surcharge ban: what does it mean for businesses?

The new legislation on card surcharges that came in January 2018

On 13 January 2018, new UK legislation and pan-European regulation came into effect, making it illegal for businesses to add surcharges to credit and debit card payments anywhere in the EEA.

The surcharge ban is one of many changes brought about by the new EU regulations known as the European Payment Services Directive 2 (PSD2), an update to the previous payments directive in 2013. The regulations are intended to increase competition in the payments industry, enhance customer protection and introduce common standards.

The surcharge ban itself is designed to ensure that customers avoid unfair or hidden charges at the point of purchase, particularly with credit card payments, where transaction costs can be as high as 3-5% and in certain industries have historically been passed on to customers.

But, what does it mean in practice for businesses?

  • Businesses that accept card payments can no longer pass the charge for processing transactions on to their customers and will have to find ways to cover the cost.
  • The ban does not apply to payments made with corporate credit or debit cards, but merchants who take payments from these sorts of cards (typically B2B businesses), cannot charge fees higher than the costs they have incurred for processing payments.

Pranav Sood, Director of Business Operations and Strategy for GoCardless, comments: “While the ban will affect anyone taking credit or debit card payments from personal cards, the impact will differ between businesses: those hardest hit are likely to be smaller merchants or those in industries that typically operate with low margins, who will struggle to absorb processing costs.”

How can businesses respond?

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in Business

Late payment is more than a headache: it could be the sign of a failing business

A problem with late payments can lead to business failure

Any business owner knows that getting paid on time is essential to cash flow, but late payment isn’t just an inconvenience. It can be a sign that a firm is out of control of its finances, not making a profit, and even on the verge of failing altogether:

If you’re not getting paid on time, and cash flow is sluggish, there’s a greater probability that money will run out, and serious trouble may not be far behind.

So what can small business owners do to protect their businesses from this common problem?

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How to get paid on time
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in Business

Record year for Direct Debit in the UK

Last week Bacs released its 2017 payment stats, showing another record-breaking year for Direct Debit in the UK.

As Bacs CEO Michael Chambers says, these huge volumes of transactions happen largely out of sight: "As long as that payment arrives on time and those crucial bills aren't missed, that is as much as we will think about the infrastructure which underpins it all." And of course, that's part of the beauty of the Direct Debit 'set and forget' system.

GoCardless also celebrated a milestone this week - our 7th birthday, so we have added some of our own stats to those from Bacs below. We're delighted to be working with more customers than ever before and to see our customers prospering (in 2017 we processed more of your payments than the previous six years put together).

We look forward to beating these figures this year!

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in Business

5 things for accountants to focus on in 2018

What should be on your radar for 2018?

It’s January, busy season is coming to an end and it’s time to start putting serious thought into the year ahead for your accountancy firm. So, what should be on your radar for 2018?

As a modern accountant, you’re riding the wave of evolutionary change taking place in the industry, utilising the most valuable fintech and cloud apps to create a practice ‘app stack’ that brings maximum efficiency to the firm.

Meeting the expectations of your clients is also a focus – offering the kinds of advice, service and long-term trusted relationships that are now seen as the norm by the new wave of ambitious, tech-savvy business owners.

So, to help you plan ahead with confidence, we’ve highlighted five key things to put on your 2018 to-do list – keeping you, your team and your clients ahead of the curve.

1. AI and automation – an opportunity, not a threat

The threat of accountants being replaced by software ‘robots’ has been a common theme over the course of the preceding year. But 2018 is the year where artificial intelligence (AI) will go from being fiction to a practical reality for a large number of practices.

Many of the leading accounting software providers – Xero, QuickBooks and Sage included – are incorporating practical elements of AI and machine learning into their offerings. And the key takeaway here is that your role as an accounting professional won’t be replaced by an algorithm – AI will sit there in the background doing the mundane data entry, coding, data analysis and automating of financial admin – giving you more time to focus on value-add services.

So, dig down into the latest product releases from your accounting and fintech providers, and see where AI can save you time, improve your automation or bring you high-level analysis.

Find out more of the benefits of AI for accountants in this post from Boma Marketing.

2. Being ready for Making Tax Digital and digital accounts

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