Late payments can wreak havoc on your business, but fortunately there are ways to ensure your clients pay on time
Cashflow is a critical concern for small businesses. Healthy cashflows provide SMEs with day to day stability and the confidence to move forward with significant business decisions, such as investing in new equipment or hiring more staff. In an ideal world, customers would pay on time and income would remain steady but that doesn’t always happen.
Late-paying customers can easily wreak havoc on small companies’ cashflow, causing a whole host of knock-on effects that risk negatively impacting business growth. What’s more, having those uncomfortable payment-chasing conversations causes stress and distracts businesses from more productive business activities.
And thisis not a small problem as UK SMEs are owed an estimated half a trillion pounds in unpaid invoices, according to a report from MarketInvoice, an invoice-finance platform. Additionally, the average UK SME is owed £36,186 in unpaid invoices, according to data from Bacs, the system responsible for bank-to-bank payments in the UK. The Bacs data also shows that 60% of SMEs have faced issues with chasing overdue payments.
These astonishing figures point to deeper problems within the UK’s business culture, problems that seriously affect smaller businesses. Customers pay late for a wide range of reasons, from pure forgetfulness, to their own cash flow issues, and everything in between. But the end result is the same: your business doesn’t get paid on time.
Fortunately there are five helpful ways with which SMEs can improve their cashflow and make late payments a thing of the past.
Make payment terms clear from the start, by defining them in the contract and noting them on every new invoice. Terms should include the full amount due, due date and any penalties for late payment. This stops customers claiming that they ‘didn’t know’ the invoice was due.
Do yourself a favour by invoicing your customers as soon as you complete the work, and double check your invoices for accuracy to avoid anything that may cause unnecessary delays.
Don’t back down. If you state late fees, make sure you implement them. This shows you’re not a pushover and often encourages customers to pay up. According to the UK government, customers must pay within 30 days of receiving your invoice, unless a different payment window is agreed. You also have the right to charge interest of 8% plus the Bank of England base rate on unpaid invoices.
Make paying easy
Let your customers choose their preferred payment method, then set up a system where they can pay you instantly. Send them payment reminders before every payment is due and make sure your bank information is displayed clearly and accurately on every invoice.
For maximum convenience, encourage your customers to set up automatic payments by direct debit. Businesses can sign up with online direct debit providers, who use the latest technology to bring the benefits of the UK’s most reliable payment system to businesses of all sizes, including sole traders. This can prove especially useful for regular recurring payments as direct debit ensures no more missed payments and keeps your cash flow in good shape.
Cashflow problems can be really damaging for your business, so it makes sense to take smart steps to handle late-paying customers. The wide range of tech solutions now available offer you plenty of choice for your ongoing business needs. Solve your cash flow challenges today and watch your business skyrocket.
This article comes courtesy of GoCardless, the UK’s leading direct debit provider.