The latest figures released by Bacs Payment Schemes Limited have shown that the true cost of late payments to small businesses in the UK is now around £2.16 billion. This huge expense is generated by the resources that are required for businesses to chase up late payments – 39% of firms spend almost an hour a day chasing late payments. As any small or medium sized enterprise knows, the key to survival is cash flow – and an increase in the number of late payments can have a devastating impact on this.
Late payments are almost the norm
Some 600,000 of the UK’s estimated 1.7 million small and medium sized enterprises regularly wait more than the agreed period to get paid. The delay could be anything from a couple of days, to a month or even 90 days. The consequences of this are seriously squeezed cash flow, which can leave parts of the business in dire need. In 82% of small business failures, the reason for the collapse is poor cash flow management so there are some very serious consequences to having clients and customers who don’t pay on time.
What impact do late payments have?
Not all businesses are completely pushed to the brink but some find themselves very close to it. Almost a third can’t pay their own suppliers when invoices are settled late while 16% struggle to pay their own staff as a result of late payments. The only way to survive until the cash starts to flow again is to rely on bank overdrafts. However, not all companies have access to this kind of borrowing and many already find themselves very close to the upper limits.
How can you avoid falling victim to late payments?
This is an issue that is increasingly more high profile and so there is now far more awareness of the problems late payments can cause than there used to be. For small businesses it’s crucial to have a payments policy in place and to ensure that all agreements reference payments. Contracts should set out when the payments are due, as well as detailing consequences for late payment, such as penalties and interest. Although these kinds of penalties can be controversial with customers and clients there comes a point where it’s important to draw a line in the sand.
Getting help with late payments
12% of small businesses employ someone to deal specifically with invoices that are overdue - a considerable full time expense for organisations that may not have that much cash to spare. Cheaper tools include automated reminders and automatic invoicing systems, which help keep customers and clients on their toes when it comes to making those essential payments on time. One of the most effective ways to ensure invoices are paid is to get some third party help. Solicitors, for example, can provide assistance when it comes to ensuring that debts are paid swiftly, as well as taking steps to make sure that this doesn’t happen again.