Ask any small business owner their least favourite aspect of company ownership, and late payments will probably be an answer. A report earlier this year suggests that “small businesses are facing a collective bill of £6.7bn per annum in outstanding payments owed by other companies – up from £2.6bn in 2017”.
It’s the latest report of many to highlight late payments and their impact on the UK’s small businesses. Another from the Federation of Small Businesses (FSB) found that small businesses are owed an average of £6,142. Most from larger businesses who haven’t paid on time. The findings were damning:
“Our research shows 37% small businesses have run into cash flow difficulties, 30% have been forced to use an overdraft and 20% cite a slowdown in profit growth. If all payments were made on time 50,000 more businesses could be kept open each year, whilst the UK economy would receive a £2.5 billion boost.”
It’s not just the cost of outstanding debt that affects small businesses. The resulting cash-flow problems can make it a challenge for businesses to pay their own bills. Chasing up late payments costs small businesses untold man hours. That in turn impacts overall productivity and pulls away time and resources from other vital business functions. This includes planning longer-term growth.
How to tackle late payments
If you’re a small business owner, you’ll probably already have heard every excuse in the book for a late payment. Perhaps your client or customer was ‘waiting for someone else to pay them so they can pay you’, for example, or they claim never to have received the invoice. You might have experienced persistent late payers whose assurances that ‘it’ll be paid by the end of the week’ or that ‘the cheque’s in the post’ never seem to ring true. So what can be done to encourage clients or customers to pay on time? Some possible approaches include:
- Make sure your invoices are clearly laid out, with the due date particularly obvious.
- Set automated invoice reminders in your accounting software to remind your customers or clients that they are unpaid.
- When an invoice goes overdue, be polite but firm in your response. Give them the benefit of the doubt to begin with – then follow up an email reminder with a phone call if there’s still no payment.
- Offer multiple payment methods to make it as easy as possible to pay you.
- Ask for payment upfront from persistent late payers.
- Offer the option to pay in installments if you think a client or customer might have cash-flow problems.
- It’s controversial, but for persistent late payers you could offer an ‘early payment discount’. You could factor this into your quote if it’s likely to be a problem with a particular client or customer.
There’s more great advice on how you can be proactive in avoiding late payments in this handy guide on the FSB website.
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