One of the most overlooked aspects of growing sales in another country is getting paid on time. A lot of time and money is spent on market research and finding the best route to market, but very little consideration is given to the management of receivables and ensuring that the customers pay on time.
There is an assumption that the process will operate just as it does in the home market, but, as in many other things, the UK is slightly different.
In many countries it is not necessary to chase payment, as the customer will pay on time. Indeed, it can be considered rude to send reminders or to telephone customers chasing the payment of an invoice. In the UK it is absolutely essential, and the attitude is sometimes that if the supplier does not chase their money, they don’t need it, and so the customer can hold onto it. This is not a satisfactory situation for the supplier, particularly a small one from the foreign country, which is effectively using the mother company as a bank.
The resultant cash flow pressure has led to some suppliers selling their unpaid invoices to finance companies in a process known as factoring, so that the finance company will own the invoice and will chase the customer for payment. This weakens the negotiating power of the customer in relation to the supplier, as it is not the supplier who is demanding payment on time.
In order to counter this, larger customers have been including “no factoring” clauses in their agreements, meaning that the supplier is back in the hands of the customer trying to press for payment. In response to pressure from small business groups, the UK government has acted to make these “no factoring” clauses illegal, but how much practical effect this will have on payment times remains to be seen.
Whilst invoice factoring is not usually appropriate for foreign owned daughter companies,recently established in the UK, this situation does bring us back to the consideration of how to get paid on time.
UK customers will not just work with the invoices for example, they will require a monthly statement, and reminders, usually by phone, to encourage payment. Whilst many aspects of sales administration can be successfully handled within the mother company, this cannot as it requires an in depth experience of how the system works, the excuses which customers will offer, and what you have to do to overcome these.
This is where EBS comes in. We have many years’ of experience with these matters and can provide practical and effective management solutions, ensuring that your customers pay on time and you have a good cash flow from your UK customers.