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How SMEs can tackle late payment and improve their cash flow

on Wednesday, 09 March 2016. Posted in Cash flow

The UK’s late payment culture is stifling the growth of small businesses but there’s plenty that SMEs can do to turn things in their favour

How SMEs can tackle late payment and improve their cash flow

For every business, cash flow is king. It’s the key to buying in stock, investing in resource and new product development. Put simply, it’s the gateway to growth. After all, no business can survive without a healthy flow of cash to meet its immediate needs.

The strain put on businesses by late and unpaid invoices is very real and a problem that unfortunately is growing. Whilst larger businesses can absorb the occasional delay in payment, late payers pose much more of a risk for SMEs. Not only is chasing payments time consuming, resource draining and frustrating, the knock-on effect is stunted business growth and critical business revenue. At its very worst, late payment can drive a small business into bankruptcy. But many of these small businesses suffer in silence, afraid to challenge their big customers and potentially lose their custom.

In the first report of its kind, MarketInvoice has uncovered the true extent of the late payments issue, using data from over 30,000 invoices held within its systems. The report is full of insights on the issue, including where late payments are occurring, and gives businesses a heads up on what to look out for so they can mitigate the issue.

So who are the key culprits?

Blue chip companies have slightly overtaken SMEs as the worst late payers, paying an average of 5.9 days late. However, SMEs tend to pay far more sporadically, often very late or very early.

The UK public sector has one of the worst records for late paying – local governments and schools aren’t great payers – but it’s worth bearing in mind that the way that they receive funding does complicate matters.

High-street retailers are also among the worst for paying their suppliers on time, at almost double the average time it takes for ecommerce businesses to pay.

Finally using stats from across 80 countries, it’s conclusive that the best and worst at paying on time are Japan and Australia respectively.  Japan’s glowing record of paying over six days early is likely as a result of its zero to negative interest rates. Whereas the average amount of time it takes for an invoice to be paid in Australia is 26.4 days overdue.

If you are struggling with late payments, here are four tips to help you mitigate the issue:

Make your payment terms clear

Having a set of terms and conditions will help to protect you from late and non-payers. When accepting new business, make sure your client has read your payment terms to help avoid any miscommunications.

Offer an incentive to early payers such as a slight discount

A great way to discourage late payers is to offer an incentive; a slight reduction in the price will do wonders.

Try to understand your client’s financial processes

Getting to know your customers and what processes they have internally means that if there’s a hold up, you will know who the right person is to chase. 

Be firm

The effect of late payments to your business can be huge and you’re under no obligation to extend credit so don’t be afraid to be firm with your clients.  

The data in this report highlights a very real and prevalent issue that affects millions of business owners every day. Whilst the data goes some way to illustrating the scale of late payment across the country, real action must be taken to stem the problem at its source. Larger companies must take more responsibility in their position of power with suppliers and change what is currently a damaging culture for UK businesses.

The report also shows that late payment is very much a UK problem – businesses operating in other European countries have a significantly better payment record than UK companies. There is a fundamental culture of late payment that has developed in the UK. This is particularly in larger companies, where the prominence of late payment patterns is so extreme and so consistent that it can only be by design.

To read more about late payments and discover data trends and patterns that might affect your business, don’t forget to download The State of Late Payment report here

This article comes courtesy of MarketInvoice, the invoice trading platform. 

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