The plague of late payment and other preventable diseases

A chokehold on cashflow restricts plans for future investment and growth and can ultimately lead to the untimely demise of many SMEs each year. The eradication of late payment is a pressing issue, not least for the tens of thousands of businesses it affects each year, but also for the Small Business Commissioner; who since taking office, has contributed to the recovery of over £4.3 million in late payments to date.

A sizeable sum for sure, but when you consider the number of small businesses affected by late payment, this is but a drop in the ocean.

Calls to give the Small Business Commissioner greater powers to address the issue, stronger legislation and increased intervention from central and local government are hot topics. These will no doubt continue to be a source of debate until an adequate solution is found.

While many small businesses struggle to grow, often with aspirations to secure larger contracts or clients, the sad truth is that according to data taken from Xero’s Small Business Insights, it takes FTSE 350 companies on average 46 days to business settle their invoices. That’s over two weeks late! With some sectors such as food production, construction and materials taking on average up to 60 and 57 days respectively, to pay.

So, the irony is, even when you do manage to secure that all-important bigger and better customer/client, who should, in theory, be the break your business needs to get to the next level, they can, in fact, hinder growth by failing to pay on time!

Equally worrying is the fact that, again, according to Xero’s Business Insights, on average “UK Small businesses are owed £24,841 as a result of late payments.  That’s almost the entire yearly salary of an employee in the UK.”

Shutting the stable door

Until now measures to create a more responsible payment culture here in the UK have had limited impact on late payments.

In 2008 the UK government the created the Prompt Payment Code, a voluntary initiative that businesses can sign up to, in agreement to adhere to a set of core principles in ensuring their suppliers are paid on time; designed to set standards for payment practices and best practice.

However, in the last six months, the scheme, which is administered by the Chartered Institute of Credit Management on behalf of the Department for Business Energy and Industrial Strategy, has suspended over 30 national and multi-national businesses as a result of poor payment practices.

In fairness, there could be any number of reasons for late payments, not least outdated bureaucratic payment procedures that cause delays. Sometimes that larger a company is the more people that are involved in the process of authorising payments.

Up until now, much of the debate around addressing the issue of late payments has focused on remedial measures to recover payments. However, businesses need to also be aware of how to minimise the threat of late payment through a number of measures:

Credit check clients or customers and set limitations for the amount of credit you are willing to offer them. In some instances, it may be feasible for you to ask for and obtain references, this should provide some insight when it comes to their reliability and creditworthiness.

Ensuring invoices are sent out on time is a good place to start, nowadays you can use both free and off the shelf accounting packages that take care of payroll, keep inventories, record transactions, automate outgoing invoices. This helps to save time in the long run and can prove to be invaluable when it comes to financial record keeping.

Terms and conditions should always be clearly stated to avoid any confusion about your expectations when it’s time for customers to settle accounts.

Although not practical for all types of businesses where possible getting paid upfront or even taking a deposit to cover the initial costs of materials, for example, can also help with cashflow and take some of the burden off your shoulders when it comes to starting a new project or contact. There’s no harm in asking and if you don’t ask, you’ll be unlikely to get.

Rewarding early payment provides an incentive for customers to pay early. In the event that a customer does default set procedures in place for how late payments will be recovered and get to know what your rights are in terms of recovering late payments. Be prepared, late payments put a strain on cashflow, hindering business performance and growth. Try to ensure that you are managing your cash flow effectively and have a contingency a plan in place for times when sales income is low.

Newable Cashflow Business Loans

Here at Newable we are well aware of the difficulties small business experience when it comes to cash flow. That’s why in response to the growing need for flexible finance solutions for business we’ve launched Newable Cashflow Business Loans.

Newable Cashflow Business Loans are available to eligible limited companies that have been trading for 12 months or more:

  • Flexible facilities of up to £25,000.
  • Competitive interest rates.
  • Cash can be requested anytime in full or in parts.
  • Quick decisions.
  • No arrangement fees.
  • Can be repaid over 90 or 180 days.
  • Repayments made daily via fixed direct debits.

Find out more about Newable Cashlow Loans here.