Academic journal article Manager

Survey: Penalty Clauses Most Effective at Deterring Late Payment

Academic journal article Manager

Survey: Penalty Clauses Most Effective at Deterring Late Payment

Article excerpt

Almost three-fifths (58 per cent) of businesses would settle their bills and invoices more promptly if a contract penalised them for late payment, according to new research.

However, the survey from European business intelligence firm Creditsafe Group also found a tenth of senior managers said nothing would compel them to speed up their payments.

The company conducted online research with managers at more than 500 businesses in April this year, and also found almost half (48 per cent) would respond to the threat of legal action as a consequence of paying late, while a third (32 per cent) would be persuaded by the potential of trade being terminated.

And perhaps most promisingly, 45 per cent of firms said they would be prompt in their paying practices if they were merely "asked nicely"

In general, however, the poll paints a problematic trading picture, with a quarter (25 per cent) of businesses admitting they had stopped paying invoices for some period of time within the last 12 months - and almost two-thirds (65 per cent) citing "managing internal cash flow" as the primary reason.

"Late payment of invoices is the scourge of the economy; it drives firms to use expensive short-term borrowing facilities and is responsible for an unacceptable number of business failures," said Creditsafe Business Development Director David Knowles.

"Firms that pay late need to realise with corporate payment data increasingly accessible they could be harming their chances of securing credit in the future and diminish the likelihood of enterprises trading with them. …

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