cash flow

Small Businesses Still Face Cash Flow Trouble as a Result of Late Payments

Late payments and unpaid accounts have been named the most common causes of cash flow trouble amongst small businesses in the UK. Despite attention from successive governments the issue of late payments still remains. The latest research done by Sage found that more than two thirds of firms (68%) have to wait 60 days or more for payment and more than half are waiting over 90 days.

For two out of three business owners (67%), larger firms are the worst offenders when it comes to late payments versus 15% of SMEs. There is a need for bigger businesses to change the way they treat smaller suppliers. 70% of business owners believe making big businesses commit to 30 days payment terms would have a positive impact upon their business.Previous Sage research on late payments has revealed:
– £55billion is owed in unpaid invoices in the UK
– The average small business is owed nearly £12,000 in outstanding invoices
– Small firms are having to spend 336 hours every year chasing late payments
– 10% of small firms report larger business customers have extended their terms by 30 days extra, and 7% by a further 45 days
– 12% of small businesses have experienced “major” cash flow issues to due to late payments.

There are a few proactive steps small business owners can take to ensure they are managing payments effectively to avoid cash flow trouble.

  1. Set out terms and conditions. Have a document that outlines your payment terms (eg 30 days). Make sure you have written acceptance from the customer of your terms and conditions.
  2. Know who you’re dealing with. Make sure you get customers to fill in an application form as part of the process of giving them credit. You can also get references from other suppliers who they deal with on whether they pay on time.
  3. Maintain good financial records. This includes making sure you keep track of all invoices and payments made by customers. A simples bookkeeping program can be very helpful as it can help you generate invoices, and track any invoices that may be overdue.
  4. Encourage customers to pay on time. It might sound obvious, but sending out your invoice on time will help prompt your customer to pay on time, as will setting out clear consequences for late payments. An easy accounting program like Cashflow Manager Gold can help you create invoices which can then be sent out by post or emailed, so the customer receives it straight away.
  5. Follow up. Once you have issued an invoice keep an eye on its progress. If a payment becomes overdue, make sure that you begin your follow up procedure straight away. Don’t be afraid to send a letter or email asking for the payment and restating the consequences of not paying. If contacting the debtor does not resolve the issue, you could add debt recovery costs or use a debt collection agency to assist with the process.

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