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In franchising, late payments can have a rippling effect across the network: “A struggling franchise can create fear across the network, which can also jeopardise franchise recruitment, should a franchisee disclose the trading problems to a prospective franchisee performing due diligence,” says Carl Reader, head of franchising for Dennis & Turnbull. So what can be done to prevent late payments? Carl suggests credit controlling from head office as a potential solution: “Some franchisors that I work with
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More than 30 per cent of small businesses say late payments have got worse in 2011, according to Sage’s monthly Omnibus. This can have a detrimental effect on SMEs – so what can franchisors do?
lmost three quarters of businesses have been paid late in the last 12 months, according to the Federation of Small Businesses (FSB). Despite the Prompt
Payment Code set up by the government, which requires companies to show a commitment to paying suppliers on time and with a clear process, the late-payment situation appears to be getting worse.
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Small firms, including franchisees, do not have the same cash-flow buffers as larger businesses and so being paid late causes a vicious circle, meaning that 38 per cent of FSB members that are paid late say they then pay their suppliers late.
“In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff,” explains John Walker, national chairman of the FSB.
Franchisors must have an established system in place, which is systematic and franchisees can follow
have taken on the entire credit control function from their franchisees. This allows franchisors to employ a dedicated, experienced credit controller, and relieves franchisees of this task.
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“Together with a robust, systemised approach, the risk of late payment is reduced. This also removes any risk of emotional leniency, as the credit controller is detached from the day-to-day dealings with the customer, and therefore is less likely to deviate from the agreed system for collecting debts.”
Franchisors must have an established system in place, which is systematic and franchisees can follow. Carl adds: “Often, small businessses treat credit control as a necessary evil, with no system behind their approach. By having templated letters, fixed timescales, and rigidly enforced further action, the risk of late payment is reduced.
“Franchisors can also help educate their franchisees about general cash flow matters, such as the need to monitor their management accounts, and in particular KPI’s such as debtor days. They can also advise their franchisees about charging interest on overdue accounts, offering settlement discounts, and other practical methods of reducing their debtor’s ledger.”n
Words by Vesna Siljanovska
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