We know that it’s difficult when a client doesn’t pay your invoice on time. It’s frustrating, not to mention the stress and cash flow issues that it can cause.
Why does it matter?
The Federation of Small Business has recently issued a report on late payments. In the report they highlight statistics that clearly show that the UK has a long way to go to resolve the persistent problem of late payments that are owed to small businesses. One of the statistics in this report got my attention: they estimate that in 2014, the failure of 50,000 businesses could have been avoided if it was not for late payments. The loss to the UK economy as a result of those closures is estimated at £2.5 billion.
Bacs Payment Schemes Limited also did a survey on late payments and the significant impact that it has on small businesses. Examples of their findings include that in 2015 it’s estimated that £32.4 billion was owed to businesses employing fewer than 250 people and £31,901 was the average late payment burden shouldered by SME’s. Another interesting stat and maybe a little surprising, was that 20% of SME’s admitted to having forgotten to invoice for goods or services at least once and that 6% admitted to having forgotten to invoice for a job worth more than £10,000.
What can you do to give your business the best chance to avoid late payers? Like with most best laid plans, there are no guarantees but at least having a plan and getting your strategy right means that you give your business the best chance of not having to deal with bad payers on a regular basis.
10 steps to take to keep you on track
- Agree payment terms upfront and ensure that they are properly accepted so that there can be no doubt whose terms govern your customer/business relationships
- Record your time or hours on a job accurately
- Always create detailed, clear and easy to understand invoices; it helps to print a further copy of your terms and conditions on every invoice or embed a link to them/attach a copy of them if you’re sending out the invoice electronically
- Make it clear in your terms and conditions that you will enforce your rights under the late payment laws on business to business debt
- Invoice the correct party – you should know if the other business is a limited company, sole trader or partnership. It is important to make sure you don’t invoice the individual if he/she is actually trading as a limited company
- Remove or reduce credit terms for persistent late payers – ensure that your terms and conditions give you the right to do this, with short notice, on failure to stick to the agreed timescales
- Add VAT correctly to your invoices
- Consider using cloud accounting software; this has some benefits that includes giving you flexibility to access your financial information 24/7, as long as you are connected to the internet
- Set aside time for the administration of dealing with invoices and payments so that late payments don’t go unnoticed
- Act on those rights where money is overdue – remember you’re entitled to do so.
If you implement these you should have a solid base to get a handle on late payments and bad payers.
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Our report shows that 37 percent have run into cash flow difficulties, 30 per cent have been forced to use an overdraft and 20 per cent say late payment has hit profits. At the extreme end, late payments and resulting cash flow difficulties have caused businesses to fail. In 2014, if payments had been made on time and as promised, 50,000 business deaths could have been avoided, growing the UK economy by £2.5 billion - a vital uplift to UK GDP just as business confidence dips amid fears of a weakening domestic economy.