Late payment means reduced profitability, knock-on late payments to suppliers and reduced business growth. Thousands of small firms go bust each year purely because the cash flow dries up.
Sage Pay research showed that two-thirds of UK businesses had experienced payments stretching more than 90 days, with invoices worth £55 billion remaining unpaid or outstanding.
Here are some things small and medium sized businesses can do to ensure faster payments:
Sign up to Creditsafe
Creditsafe collects information on how quickly companies pay their invoices. Creditsafe’s customers share information and insights about payment times, highlighting poor payers and promoting best practice. There are more than one million companies on the database, providing a unique window into corporate financial behaviour. Armed with the data that Creditsafe can provide, SMEs can take better-informed decisions on whether to accept work or commissions from certain companies.
Be proactive and chase your suppliers for payment. Make it clear that you’d prefer to be paid electronically by digital transfer or Direct Debit, rather than by cheque. Also, if you’re waiting on a particularly large payment, don’t be afraid to make a courtesy call or write an email to the supplier to check they’ve received your invoice and that there are no queries about it.
You have a statutory right to claim interest on late payments at 8% over the Bank of England base rate. Additionally, you can claim compensation for debt recovery costs. Letting your customers know this as early as possible may encourage payment.
Minimise the risk of delayed payments by providing flexibility around credit terms. For example, set up a facility for payment by credit card and think about offering discounts, such as 1% for early payments. Remember to balance the extent of any discount with the benefits of having an improved cash flow.
Consider ‘invoice discounting’
Invoice finance solutions can be ideal for small businesses in need of an immediate cash flow injection. ‘Invoice discounting’ is essentially a cash advance against the value of your invoices. So when you raise an invoice you’ll receive 85% of its value from a financier within 24 hours. You’ll retain full control over credit management. The financier simply gives you cash up front and you pay them back, plus a small admin fee, when you receive payment.
Professional invoice templates
Getting paid on time is vital. Download our set of professional, VAT-compliant invoice templates to make sure you make a good impression and get paid faster.