The number of small businesses in the UK is at a record high, with an incredible 80 new companies born every single hour in 2016.
There’s no doubt that these entrepreneurs are a force to be reckoned with. Long hailed as the backbone of our economy, they are powering huge prosperity, boasting a combined annual turnover of £1.8 trillion according to statistics from the Federation of Small Business (FSB).
53% of Britain’s small companies are waiting for overdue bills to be paid, don’t let your business be one of them
It is somewhat disheartening then, to consider that the age-old issue of late payments is still hampering the success of new, micro and small businesses. Over half of Britain’s smallest companies are waiting for overdue bills to be paid, a 2016 survey by Zurich suggested, totalling a whopping £255bn.
Larger organisations which disregard the need to pay invoices on time are failing to consider the repercussions this has on their smaller counterparts. Running a small business demands blood, sweat and tears, and any added pressure can be detrimental to their success.
Every day is a juggling act of bringing in sales, spending time with customers, balancing the books and a hundred-and-one other jobs that owners need to complete to keep their business running and growing – they do not need the added stress of late payments impacting their cashflow.
The FSB chairman Mike Cherry has stated that almost 50,000 small and medium-sized enterprises go under every year because of late payments. Just one late or missed payment can cause a rippling effect through a small business’ cashflow, unbalancing the books and changing the amount of money that a business owner had set aside to buy stock, pay wages and keep themselves afloat.
Change is underway to tackle late payment problems
Thankfully, the government is taking this issue seriously and recently put new legislation in place forcing large companies in the UK to report twice a year on all their payment practices – including the average time it takes them to pay invoices.
Through transparency and public scrutiny, the government hopes this duty to report will encourage large businesses to pay their small suppliers on time.
This is a huge development for small and medium enteprises as more reliable payments will provide them with more certainty over when they will have money coming into the business. The ability to better manage their cash flow will give them the financial confidence to thrive, and help them to be a continued vital contributor to the success of the UK economy.
This new legislation is now in place, and only time will tell the impact it will have on one of the biggest issues facing small businesses.
While this marks one step closer to tackling the late payments problem, thereis still a long road ahead, and small business owners need to be doing all they can to pre-empt and tackle this issue head on.
Here are some suggestions for start-ups and small businesses to avoid, and combat, late payments issues:
1. Consider a move to electronic invoicing
A move to electronic invoicing or even immediate card payments has the potential to significantly improve your small business’ cash flow. It can save valuable time by automating the entire process, as well as making it easier for customers and suppliers to pay – which encourages swifter payment.
2. Push large enterprise customers harder for payments
Consider issuing penalties or adding interest for outstanding payments from those big businesses that are paying late because they’re out to protect their own cash flow.
Not enough small business owners are doing this because they fear losing business from their large enterprise customers, or perhaps they just aren’t aware that they have this right.
3. Enforce 30-day payment terms
This is a standard time-period for payment terms and, if your business has this in place, you should start chasing from day 31 to get paid as quickly as possible.
The longer a job is completed without payment, the more difficult it will become to get paid.
4. Get on top of your finances
Having a complete overview of what’s coming in versus what’s going out will enable a business to forecast better. It will give a clearer idea of when payments are due and enable you to chase at the right time.
There are many different management tools available to provide you with real-time access to your finances. Getting a complete look at the health of your business at the touch of a button also enables you to make better-informed business decisions very quickly.
5. Build the best possible relationships with your customers
The importance of building a good relationship extends beyond retaining the loyalty of your customers.
It sounds obvious, but if you take the time and effort to get to know your customers personally, both usual contacts and those in their finance teams, they’ll be less likely to cause complications when it comes to making payments.
6. Set money aside for when times could be tough
Having some reserves can provide the reassurance needed if something goes wrong and payment is delayed. Build in a buffer and don’t touch it unless absolutely necessary.
Larger businesses are often a significant revenue stream for small companies and the blame for late payments frequently lies with them. The new regulations are a great step forward in paving the way to change this but, for now, you need to do everything in your power to combat the issue from the top down and keep your business afloat.
If you can identify and action these processes, it will make a huge difference to powering prosperity not just for your own business but for the UK economy as a whole.
Tackle late payments: A small business checklist
- Automate processes by moving to electronic invoicing
- Add penalties or interest to encourage large enterprise customers to pay on time
- Adopt 30 day payment terms as standard
- Know your finances inside out; including forecasts and the overall health of your business
- Get to know your customers and clients personally – this will make them more likely to pay on time
- Have a cash reserve ready in case payments are delayed
Dominic Allon is vice president and managing director of Intuit Europe