It’s important that those outside the small business community try to understand what keeps us, as entrepreneurs, up at night – and late payments is one of them.
As a business owner myself, and an elected Director of the Federation of Small Businesses, I am keenly aware of the issues that small businesses and those who are self-employed face when simply trying to find work and get paid for a job well done.
In the commercial world, people often kick off conversations with the latest set of corporate results or the government’s newest business-focused initiative. Beneath the headline-grabbing business news stories, though, the thorny issues that occupy us day-to-day can go under the radar.
Chief among these is cash flow. And, more specifically, a UK late payment crisis that now sees £14bn withheld from small firms by businesses that don’t pay on time.
The problem is worse here than anywhere else in Europe. Around 5p in every £1 of UK revenues has to be written off due to poor payment practice. That’s compared to 4p in Greece, 3p in Romania and less than 1p in Finland. This has human consequences – for ourselves, our businesses, our employees and indeed our families.
If you’re not sure if or when you’re next getting paid, that causes a lot of stress. Then there’s the economic impact: the time and effort we spend chasing money owed should be spent running our businesses.
The latest research from Sage shows that smaller UK firms spend an astonishing 15 days a year chasing late payments on average.
The Domino Effect: The impact of late payments
Get our global research report to uncover why customers pay late, the impact on businesses and what you can do to tackle the problem.
So how can we avoid getting caught up in the invoice waiting game? Here are five late payments rules to follow to help ensure you’re paid sooner rather than later.
1. Research your buyers
Before signing on the dotted line, research potential clients to see if they have a track record of poor payment. The UK government now requires the biggest businesses to report on their payment practices. These reports are available to search online.
More than 1,000 large companies have so far started to report on how they pay, and thousands more will follow suit over the coming months.
Reference agencies such as Experian will conduct credit ratings for a small fee. These are a good way to get a sense of how bigger firms treat suppliers.
2. Make payment terms clear
Ambiguity around payment terms has to be avoided at all costs. If you expect to be paid within 30 days, make that crystal clear when drawing up agreements. Equally, leave your buyer in no doubt that practices such as retrospective discounting, where big firms decide to pay less than agreed simply because they’ve paid on time, won’t be tolerated.
It’s also a good idea to send payment instructions and deadlines alongside invoices when they’re issued. Setting up user-friendly online and card payment facilities can also help avoid delays.
Ultimately, you’re looking to pre-empt any excuses your clients might try and muster for paying late.
3. Provide timely reminders and know the law
Setting up automated emails to clients to remind them when payments are due can nudge them into settling invoices more promptly. It’s also important to be aware of legislation in the space, such as the payment terms set out in the Public Contract Regulations.
Cost effective legal support is also out there to help tackle repeat offenders. In a lot of cases, a letter from a solicitor is enough to make late payers change their ways.
4. Make late payers pay
You have the right to charge interest on invoices the moment they become overdue. Use it. FSB research shows that eight in 10 small firms don’t charge interest on late payments. That needs to change.
It can be a daunting prospect to take this kind of action against important clients. However, you need to remember that, if payment terms have been made clear, you’re only taking the kind of fair, commercially savvy action that would be returned if the boot were on the other foot.
If clients expect work to be done on time, payment should be made on time.
5. Don’t be afraid to speak out
We can’t hope to change our endemic poor payment culture unless we’re prepared to call out bad practice.
Appointed towards the end of 2017, the Small Business Commissioner has been tasked with bringing our late payment crisis to an end. As part of his efforts, he’s established a dispute handling service, which provides assistance to small firms who are not being paid on time.
If you have been affected by late payments, don’t hesitate to reach out to the Commissioner. The late payment crisis will not climb up the national agenda unless we as small businesses are vocal on the issue.
It’s hard to avoid being stung by late payers at some stage during your firm’s development. But following these five steps can help you steer clear of the waiting game.
Too many big businesses don’t play fair. Adopting the right tactics, however, can ensure you aren’t left waiting for the cash you’re rightfully owed.
The Art of Being Paid
Chasing invoice payments doesn’t have to be painful. Use this kit to answer a few questions about your customers so you understand their payment drivers, then read our advice on how to flex your style for each, calling techniques and much more.
Recommended Next Read
5 ways to improve your cash flow ahead of Christmas