Once again late payments amongst small businesses have been making headlines. With small and emerging businesses employing 60% of the UK’s private workforce, they make up a huge percentage of the economy. It isn’t therefore surprising that the problem of late payments is being brought to the fore.
Recent studies have shown that small businesses in the UK are collectively owed an enormous £266 billion in late payments from customers and suppliers.
Needless to say, these late payments can become detrimental to the financial health of a small business’ cash flow, at best leading to additional work and stress and at worst putting them out of business.
Of course, no business, large or small, would welcome delayed payments, however it is a sad reality that 62% of invoices in the UK are paid late. This can lead to vicious consequences further down the supply chain such as employees being paid late.
With this in mind, here are some tips for how any small business can ease the impact of overdue invoices. Note: a sale can only be called a sale once payment has been received.
Predict with Honesty
One of the most common pitfalls for a small business is failing to plan in advance the money they’ll need in the future. To make accurate predictions regarding cash flow business need to be honest. With the small business environment shrouded in optimism, getting an honest estimate on invoice payments can be more easily said than done.
If your sales are sinking, then you ought to be ready to admit it and act immediately - whether in terms of seeking monetary support externally or ensuring that you’re keeping lines of communication open with suppliers, particularly during tough times. Most businesses are understanding and willing to work with you, but being honest is always the best solution to avoid future issues.
Have a Credit Control Process in Place
Your credit control should be in place long before your first sale. Set up to invoice clients correctly and ensure that you’re billing the right entity with the right details.
Sustaining a strong, healthy relationship with your clients is a sure fire way to increase the probability that they’ll pay you in a timely manner. Try thanking your clients who always make payments on time - it will definitely be appreciated.
You could take the administrative burden of invoicing off your shoulders by putting in place a direct debit system, though you need to keep in mind that certain clients may not like this approach and adjust accordingly.
After closing a deal, be sure to remain proactive and follow up with your clients until you receive payment. The longer debts go unpaid, the less likely you’re going to see your money.
If you find there’s going to be a payment delay, don’t be afraid to ask “why?” Are there internal issues that could become more efficient? Perhaps, your product or service is faulty? If that’s the case, open a dialogue with your clients or customers to understand the problem and do whatever you can to resolve it as quickly as possible.
If you are using a financial intermediary, be conscious of how many sources you’re borrowing funds from. Paying off loans with interest to several providers may help you out in the short term, but could cause problems in the future. Talk to Nucleus about our services and how we can break the cycle – working with clients to ensure the best results for them.
Whilst all businesses at some point encounter cash flow issues, if you plan ahead, you need not depend on financing in the long term.
Consider Alternative Business Funding (Invoice Finance)
Managing funds through a reputed business finance provider is an excellent way of staying ahead of potential late invoice payments. This won’t only help in maintaining positive cash flow but will also keep your business sustainable during financially tough times. There are plenty of funding options to choose from, but invoice finance is best suited to tackle late payment issues faced by small business.
A common scenario for small businesses is providing customers with longer credit terms than they receive from suppliers. These cash flow issues are then exacerbated when they pay late. This level of financial unsteadiness can leave a business unable to pay staff or suppliers on time, and when this becomes a regular issue, the consequences can be devastating.
If this sounds familiar in your business, you are not alone. In such cases, consider invoice finance options. Your finance provider will pay you a pre-determined portion of the invoice as soon as it is received and the balance will be settled in full once your customer or supplier pays.
No matter the size of your business, financial planning is crucial. Being honest and informed is crucial to taking control of cash flow, as is knowing where to ask for help when you need it.
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