Late payments: Why your invoices are delayed and how to get paid faster

Chasing late payments is a big issue for small and medium-sized businesses. If you’re not receiving payments on time, it could lead to a drop in profits, a struggle with your cash flow and worse.

We’ve conducted research into late payments, surveying more than 3,000 small and medium enterprises (SMEs) across 11 countries, to uncover the true impact of this issue and understand the main barriers to chasing payments.

The results paint a vivid picture of the impact of late payments on businesses:

• In the UK, 17% of all payments to SMEs are late.
• UK SMEs spend 15 days a year chasing late payments.
• More than 50% of UK SMEs currently experience or expect to experience a negative impact on company investment, their ability to pay their suppliers and their ability to pay staff an annual bonus.

It’s unacceptable for 17% of all payments to SMEs to be paid late. Often, our entrepreneurs rely on low cash reserves to operate, meaning delays to income can have a substantial impact on their businesses.

So why do late payments occur and what’s stopping SMEs from chasing their customers for the money they need to keep their businesses running? Our survey uncovered some patterns:

Excuses for late payments  

In the UK, the most common excuses given by customers for payments being late are:

• The payment has already been made and the transaction is still pending (44%).
• No reason is given (35%).
• The customer only pays invoices at certain times of the year (22%).

Barriers to chasing late payments

Many SMEs find it difficult to raise the late payments issue and be firm with their customers because doing so could jeopardise future relationships. The biggest barriers to chasing late payment cited by UK SMEs are:

• That the SME wants to protect the client relationship (40%).
• There’s no dedicated resources to chase late payments (35%).
• There’s not enough staff available to chase late payments (18%).

How to conquer late payments

So what can businesses do to reduce the impact of late payments?

Establish strict payment terms upfront

Our survey shows the most common reason given for delaying payments is that the transaction is pending. There could be a significant improvement in timely payments if your business tightened up its payment terms from the start.

Late payers are likely to be aware of the situation they cause and could be willing to pay you faster if it was a requirement for service. This helps to manage your customer’s expectations and gives them time to schedule their payment in advance.

Stop asking and use automation

When making a payment is easy, you don’t have to ask twice. Automatic and digital payment methods, such as direct debit and e-invoicing, can make payments as simple as one click for your customers and virtually eliminate the top obstacles to getting paid on time. Therefore:

• No need for awkward conversations, strained client relationships or dedicated staff to give chase because the payment is reconciled into your account once the customer initiates the transaction.
• No need to track transactions to see if they’ve cleared.
• E-invoice and direct debit amounts are automatically generated, processed and reconciled, eliminating human error and customer disputes.

Digital payments that are automatically reconciled in your bank account can also give you more visibility and control of your cash flow. Since those types of payments are more reliable, you can better forecast what funds you’ll have available throughout the year, giving you the agility to adjust as needed.

We’ll keep working on the battle against late payments to offer you the insights and advice you need to win the fight.

What are your stories of dealing with late payments? Let us know in the comments below.