The Chancellor, Philip Hammond, last week announced plans to “tackle the scourge of late payments” to small businesses, including a requirement for listed companies to report on their performance in annual reports and accounts.
So, how did we arrive at this point and what needs to be done?
Accounts receivable. We’ve all heard the term before, but if you’re not part of a finance team, it can be tough to fully understand what impact it will have on your cash flow and the health of your business.
In this week’s FAQ Friday, we break down exactly what accounts receivable means, why it’s really important and share a few tips on how you can improve it to benefit your payment collection and overall cash flow.
In our article, we noted that, whilst the regulations came into force in April 2017, the reporting obligation was linked to each company’s financial year, so not everyone within scope was required to take action immediately. And it wasn’t entirely clear that all involved were fully aware of that fact, as the regulations had not been particularly widely publicised.
Several high-profile cases, such as Carillion (which collapsed while owing £2 billion to 30,000 suppliers) and House of Fraser (which went into administration, owing its suppliers £484 million, according to documents from EY), have put the issue of prompt payment further into the spotlight.
What, then, is the current state of play now that the regulations are fully in force?
In September 2019, Strong Customer Authentication (SCA), a new regulation for authenticating online payments, will be rolled out across Europe, as part of the Second Payment Services Directive (PDS2).
One of the key aims of SCA is to reduce the incidence of payer fraud and increase security, by introducing two-factor authentication on electronic payments.
What kind of transactions are affected?
The regulation comes into force on 14 September 2019, and will affect any businesses offering online access to payment accounts in Europe, or taking electronic payments, where the payment is initiated by the payer.
SCA does not currently apply to GoCardless’ Direct Debit payments service. That’s because payments through GoCardless are initiated by the payee and payment mandates are set up without the payer directly interacting with their bank.
As small and medium-sized businesses wake up to 2019, many will be looking at their financial goals for the year ahead.
Plans for growth can quickly be undermined if businesses can’t collect the money they’re owed. Britain’s small businesses are owed a whopping £6.7 billion in overdue invoices, according to Bacs Payment Schemes, the organisation which handles inter-bank transactions. This has soared from £2.6 billion in 2017, with one in three firms now waiting more than two months beyond agreed payment terms to receive their money.
The effects are real – if businesses were paid on time, 50,000 more UK companies would survive every year, the Federation of Small Businesses calculates.
So, with more companies being left out of pocket for longer periods, here are our 10 tips for prompt payment in 2019.
GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, registration number 597190, for the provision of payment services.