Are Late Paying Customers Putting Your Business at Risk

Posted 07/08/17

Many small or medium sized businesses (SMEs) often experience difficulties with late payments and subsequently the pain that goes with customers failing to pay up on time, according to a report issued by Sage.1 Late payment affects cashflow2 and chasing those unpunctual customers inevitably diverts business owners away from their everyday activities.

But late payment is more than just an irritation it seems.  Research from Bacs Payment Schemes found that the issue costs SMEs around £2 billion per year3 ‒ meanwhile, research from Zurich suggests that the total owed by late-paying customers stands at £44.6 billion4.

The Bacs research revealed the devastating impact of this debt on SMEs:

  • More than a third are affected by late payment – and spend around four hours per week chasing payment.
  • One in five say late payment debts of £20,000‒£50,000 would leave them bankrupt.
  • Nearly one in four rely on bank overdrafts to mitigate late payment and keep up with essential overheads.
  • 16% struggle to pay staff on time.

So, if you run or work in an SME, there’s a chance you’ll be affected by late payment and overdue invoice issues at some stage – but what can you do to lessen the chance and mitigate the impact?

Six Ways SMEs Deal With Late Payment Problems

Dealing with late payment is not always easy, so taking steps to avoid it happening in the first place is just as important as knowing what to do when customers fail to pay on time.

With that in mind, here are six things SMEs do to either avoid or deal with late payment:

  1. Credit check new customers: Some SMEs refuse to give new customers credit before they have run credit checks to make sure they are in a position to pay, and have a good track record for paying on time5.
  2. Make payment terms clear from the outset: It seems obvious, but making sure everyone understands payment terms and including them on every invoice can help to avoid misunderstandings6.
  3. Don’t accept cheques: Fewer and fewer SMEs now accept payment by cheque, which are a big source of late payment according to Bacs7.
  4. Know your rights (and make it clear you’ll enforce them): SMEs can charge 8% interest on late payments8.
  5. Don’t let a problem grow: Chase overdue payments as soon as possible, and don’t extend any more credit to late paying customers until they settle up9.
  6. If all else fails, get help: The Credit Services Association is a useful place to start looking for professional support dealing with late payment10.

 

 

1 http://www.theaccountancy.co.uk/articles/small-business-cash-flow-affected-late-payments-4669.html

2 http://www.theaccountancy.co.uk/articles/small-business-cash-flow-affected-late-payments-4669.html

3 http://www.independent.co.uk/news/business/news/late-payments-uk-business-cost-sme-2-billion-a-year-bacs-payment-customers-a7846781.html

4 http://www.independent.co.uk/Business/indyventure/late-payment-sme-startup-uk-zurich-jeremy-corbyn-labour-supplier-a7684136.html

5 http://www.independent.co.uk/Business/indyventure/late-payment-sme-startup-uk-zurich-jeremy-corbyn-labour-supplier-a7684136.html

6 http://www.independent.co.uk/Business/indyventure/late-payment-sme-startup-uk-zurich-jeremy-corbyn-labour-supplier-a7684136.html

7https://www.bacs.co.uk/Services/bacsschemes/SectorSpecificInformationSMEs/Pages/LatePaymentTips.aspx

8 http://payontime.co.uk/late-payment-legislation-interest-calculators

9 http://www.independent.co.uk/Business/indyventure/late-payment-sme-startup-uk-zurich-jeremy-corbyn-labour-supplier-a7684136.html

10 http://www.csa-uk.com

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