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Late payments
1 February 2021

Late again

Late payments have always been an issue for small businesses but a recent study by the Federation of Small Businesses (FSB) has shown that this has increased dramatically during the Covid-19 health crisis.

The survey showed:

  • 62% of small businesses have experienced an increase in late payments or had payments frozen completely
  • 10% have experienced a lengthening of payment terms from customers
  • Sectors hardest hit include Wholesale, Legal & Accounting and Advertising

Small Businesses

It’s likely that most of your customers are other small businesses just like you.

The good thing is that they understand how important cash and timely payments are to you, and generally make every effort to pay on time.

However, it is also likely that they have cash flow very much front of mind and so supplier payments can slip quickly.

Think about these simple measures:

  • Implement a system such as GoCardless which allows you to collect payment on a direct debit basis. Once the customer has agreed the mandate, you are in control of regular payments and you avoid the risk of your invoice getting forgotten.
  • Add additional payment methods to your invoices to make it as easy as possible for your customer to pay. As well as traditional bank transfer, collaborations between accounting systems like Xero with PayPal, Stripe and others mean that your invoices can appear with a simple ‘pay now’ button.
  • Set up automated e-mail reminders so that payments are chased without you having to get involved.
  • Run a credit check on a new customer before you start providing goods or services. If they have a poor credit rating you may want to consider requesting payment up front or on a staged basis.

Large Companies and Corporates

Whilst the government have announced a number of reforms to tackle this area, late payments from large corporates to small businesses remains a big issue in our experience.

Larger companies demand longer payment terms to support their own cashflow and their processes for getting paid can be complex.

Help yourself to get paid faster by:

  • Negotiating on payment terms. Whilst standard payment terms can be 60 or even 90 days this issue is an area of scrutiny and many such as Morrisons and Vodafone are putting steps in place to support small businesses.
  • Knowing the payment process from the start. Most large companies have a strict purchasing process in place.  Ensure that your contact has received the correct sign off internally and that you know when and to who your invoice needs to be sent before you start work.
  • Getting your invoice right! Sounds obvious, but if your invoice fails to include the right references or purchase order number it is likely that it will get stuck in the system and not get paid.
  • Invoicing quickly! Make sure that you invoice as soon as the work is done and don’t leave it until the end of the week or month.  A complex payment process combined with long payment terms can mean a long wait for the cash so don’t add to it.  With cloud accounting systems such as Xero invoices can be drafted, sent on the go from the Xero app and scheduled to repeat automatically.

Consumers

For many businesses who sell direct to consumer late payments are less of an issue.  In a shop for example, payment is collected directly at the point of purchase.

However, for those providing services, including trades people, late or even non payment is much more of a risk.

Look to mitigate this risk by:

  • Taking a deposit for the work up front
  • Agreeing a schedule of work and collecting staged payments throughout the project – make sure these are reflected in your invoicing system so you know when to bill them
  • Requesting payment for any materials purchased on receipt

Friends

We all love working with people we like, it’s what many small businesses thrive on.

But when your customers are also your friends, it can make collecting debts tricky and put strain on those relationships.

Try to take the emotion out of the situation and remove yourself from being the direct contact:

  • Set up e-mail reminders from your invoicing system. In software such as Xero you can tailor the wording so these can be automated but still be friendly and engaging.  Often people are just busy and need a little nudge.
  • Ask your accountant or bookkeeper to chase the debt for you. A 3rd party individual can often have that little bit of independence from the situation to make it an easier conversation.
  • Agree a payment plan which works for you both. With systems like GoCardless, regular payments can be collected without you needing to be involved.
  • Most of all, be kind.

We hope you have found this information useful but if you need any help please get in touch.