How late payments are impacting UK businesses and what you can do to get ahead of the game.
If two words could make any business owner shiver with fear, it would be late payments. Is there anything worse than sending out an invoice, with generous payment terms, and still having to wait for your invoice to be settled? Imagine the havoc this wreaks on cash flow.
The unfortunate truth is that too many businesses are having to chase late payments. Recent insights into how and when UK SMEs are being paid are showing some unsettling stats. In fact, in 2019 as much as 39% of all invoices issued were paid late. Although this number has decreased from 43% in 2018, it’s still not enough to curb the rippling effect late payments have on small to medium-size businesses and the UK economy.
The biggest impact late payments have on a business is on cash flow. This in turn impacts sustainability, growth options and essentially the chance of survival. So what can smaller businesses do to keep their cash flowing in? How is this trend of late payments affecting them and, more importantly, how can you avoid it altogether?
In this article, we’ll look at these three strategies you can use to win the battle against late payments:
- Knowing your customers
- Managing your accounting
- Making it easy for your customers to pay
1 . KNOWING YOUR CUSTOMERS
A personal relationship with your customers can play a vital role in avoiding late payments. By keeping track of your customers, their sales history and overall health, you can spot potential problems before they arise. This way you can adjust your payment terms, enforce late payment penalties and evaluate your future relationships. And when the time comes to make that call to remind a customer to pay up, you can fall back on your relationship to make the conversation less confrontational.
Now, this knowledge doesn’t just help with weeding out the potential problems. It can also help you reward those customers who are paying on time. Giving small incentives to loyal and prompt payers will help secure positive future practices. Not to mention giving you the heads up to plan for the future and secure external finance solutions, like a small business loan, if needed.
2. MANAGING YOUR ACCOUNTING
We know that it’s a busy world and that you’ve got a lot on your plate, but we can’t stress this next part enough: keeping up to date with your accounting is crucial.
You need to know who needs to pay you, who has and who still hasn’t paid. By using online accounting systems like QuickBooks or Sage, you can track your business every minute of the day. Using electronic invoicing also comes with the bonus that you can now see when your customers have received the invoice – sometimes even when they’ve opened it. Eliminating the old excuses of “Oh, sorry didn’t get your invoice.”
3. MAKING IT EASY FOR YOUR CUSTOMERS TO PAY
No one has time to struggle with payments, and the slightest glitch in the system can make customers hide their wallets. Make sure that your invoices are going out promptly and that you give your customers payment options that are easy for them to use. For example, Xero has invoicing software that is simple, secure and offers payments with a click. Easy for you to track and easy for your customers to pay.
GET A JUMP ON LATE PAYMENTS
Late payments might be the bane of all small businesses out there but following these three strategies will give you a head start in the game. You can also click here for more tips on how to deal with late payments.
If you do find yourself in the position of needing external finance, we can help with that. Find out more about our fast and flexible funding solutions designed to help your business grow and thrive.