Late Payments Matter

According to new research, approximately 4,000 small and medium sized firms in the U.K. collapsed in 2008 due to late payments by customers. This amounted to approximately 62 billion pounds that were more than 30 days late and of this 15.5 billion that were more than 120 days overdue. For more than twelve percent of these firms, over 60% of all their invoices are paid late.

Required:

1.  What can businesses do to alleviate the problems of late payments? 

2.  Explain the cash flow implications of this problem. 

3. What type of financial ratios could a company perform in order to better understand the severity of this problem? 

4.  How does the current “credit squeeze” add to the woes for both businesses and consumers?

Source: Murchie, Kay. (2010) Firms collapse due to late payments, according to research. Financial Markets – Economy News, April 15 (Retrievable at http://www.financemarkets.co.uk/2010/04/15/firms-collapse-due-to-late-payments-according-to-research/)