How to minimise late payments and the resulting cashflow challenge for SMEs

In recent conversations with our customers about business challenges, a common theme is the issue of late payments. This was also highlighted in research published by the Federation of Small Businesses (FSB). Their research revealed that “Britain’s late payment crisis is worsening”.

The research found that 84% of small firms reported being paid late, with 33% saying at least one in four payments they’re owed arrives later than the agreed terms. It also found that 37% stated that agreed payment terms have lengthened in the past two years, resulting in cash flow challenges. Only 4% say payment terms are improving.

The collapse of Carillion has highlighted the impact of poor payment practices. FSB National Chairman Mike Cherry noted “Our late payment crisis causes the closure of an estimated 50,000 businesses a year, costing the economy £2.5 billion annually. The collapse of Carillion saw the dangers of poor payment practice writ large. The sorry episode has cost jobs and ruined lives.”

Businesses require healthy cash flow in order to operate on a day-to-day basis. It can often make the difference between staying in business or going under, so management of credit control is essential to minimise late and unpaid invoices. Research from Sage identified that chasing payments is one of the greatest barriers to productivity and growth for UK businesses, with 17% of all payments in the UK made late and 9% eventually written-off as bad debt.

Late and unpaid invoices not only result in loss of revenue, but are also costly in terms of time and money in the many unproductive hours spent chasing outstanding invoices.

With a bit of planning, you can improve and manage your cash flow so that you’re covered for slow periods before they even happen. Manage your debtors by monitoring and chasing invoices as they become overdue. By implementing credit control processes, procedures for chasing payments, and penalties for late payments, you will educate your customers that paying on time will have a beneficial impact – you won’t be chasing them on a regular basis and they will also avoid late payment penalties. Why not check out our article “Planning ahead for better cashflow” which provides lots of tips and guidance on business methods to help you manage your cashflow.

The use of cloud-based accounting can also help you to minimise late payments. Systems such as Xero, Quick Books and Sage allow your invoices to be electronically sent to your customers, avoiding the phrase “I never received the invoice”! You can provide a pay now button to enable immediate payment and set up an auto reminder for unpaid invoices. However, a quick call to the customer can address any issues they may have in making payment; building a relationship with your customers accounts payable can be beneficial. See Cloud Accounting Software for Small Business for more information.

Providing your customers with clear payment terms and incentivising early payments will educate and encourage them to pay early or on time. This will also assist in building a strong working partnership for future business growth. Business is all about relationships!
The implementation of robust credit control process and procedures should see a significant reduction in overdue invoices, which will result in business confidence in cashflow forecasting.

While the best processes and procedures can be implemented and executed, there may remain occasions that late payments impact on cashflow and working capital. In order to avoid the stresses and challenges that come with cashflow issues, the team at Just Cashflow developed the Revolving Credit Facility (RCF).

The RCF works exactly in the same way as a traditional bank overdraft and allows growing businesses to smooth out the peaks and troughs of cashflow challenges. The interest is charged on a daily basis and there is no long-term commitment, providing complete flexibility for the borrower. Funds can be paid directly into the business bank account or added to a BusinessPlus MasterCard Card that enables businesses to use their Facility for everyday purchases.

For more information check out https://www.just-cashflow.com/products/revolving-credit-facility and read how the RCF has helped many Just Cashflow customers at https://www.just-cashflow.com/who/who-have-we-funded