Don’t let your business’s growth plans be derailed by customers that don’t pay their bills on time
Britain’s small and medium-sized enterprises are still suffering from the effects of late-paying customers. Findings from the latest Close Brothers Business Barometer suggest late payments are a problem for just over half of SMEs – the impact of which was felt mostly in the ability to manage cash flow, followed closely by the loss of time spent chasing clients and the ability to trade.
SMEs in the UK continue to innovate in response to challenges they face. Many found new ways of working, despite lockdowns, and 2022 saw dynamic teams thrive under economic and operational strain.
However, our latest research suggests worry, across all sectors, about the same challenges that were faced last year. Respondents highlighted cash flow in the top five main concerns for businesses, along with concerns about rising energy costs, inflation, interest rates and materials supply.
Assessing the historic data available from the Business Barometer there is no great improvement in late payment difficulties. Before 2020, and the impact of Covid-19, three fifths of those surveyed said that this issue was the same year on year. In the last three years over 94% of SMEs responded that there was an increase, or the same level of late settlement problems for them, compared to the previous year.
The outstanding amounts owed by customers who fail to pay their bills on time is staggering and although there have been Government-led attempts to tackle the scourge of late payments, SMEs continue to suffer.
How to tackle this problem? Well, there is no one-size-fits-all solution to the scourge of late payments, but these nine tips will help:
1. Know your customers
Run credit checks on new customers in order to identify those that other businesses have had problems with. This could save you valuable time and money in the future and it is now possible to run quick checks online.
2. Be clear about your payment terms
Include your payment terms on every invoice you send and keep them consistent. Always outline the terms verbally to new customers.
3. Avoid cheques
Ask customers to pay using cash, electronic transfer or direct debit so that there is no opportunity for payments to be rejected.
4. Invest in credit control
Make sure any credit control staff you use is well-equipped. They should be consistently firm but polite, resilient and organised. Factoring is an excellent option for businesses that would prefer to outsource this function to a professional.
5. Make a courtesy call
If you've issued a customer with an unusually large invoice, call them up before payment is due to make sure it has been received and there is no query.
6. Start chasing right away
Don't delay in chasing a late payment - start the day after it was due. The longer you leave it before you contact your customer, the further down the queue your invoice will drop.
7. Claim interest
You have a statutory right to claim interest on late payments at 8% over the Bank of England base rate. You can also claim compensation for debt recovery costs. Letting your customers know this as early as possible may encourage timely payment.
8. Be flexible
On larger outstanding amounts, be prepared to offer flexible payment terms. Whether this means regular instalments or simply splitting a bill into two manageable chunks, may, in some circumstances, be your best chance of payment.
9. Consider invoice finance
Invoice finance enables you to unlock money tied up in unpaid bills and will help you manage your cash flow despite late payments. Whether you would prefer to manage the credit control element yourself, or outsource it, there is a product that will suit your business.
*These statistics have been updated and are correct as of November 2022.
