Some 80 new companies were born every single hour in 2016, and each new self-employed worker and small business is powering huge prosperity, boasting a combined annual turnover of £1.8tn. It is thus somewhat disheartening that late payments still hamper the success of SMEs.
Over half of Britain’s smallest companies are waiting for overdue bills to be paid, according to a recent survey by Zurich, totalling a whopping £44.6bn.
Larger organisations which disregard the need to pay invoices on time are failing to consider the repercussions this has on smaller counterparts. Running a small business demands blood, sweat and tears, and any added pressure can be detrimental to success.
Every day is a juggling act of bringing in sales, spending time with customers, balancing the books and 101 other jobs that owners need to complete to keep their business running and growing they do not need the added stress of late payments impacting cashflow.
The Federation of Small Business” chairman Mike Cherry has stated that almost 50,000 SMEs go under every year because of late payments. Just one late or missed payment can unbalance the books and change the amount of money a business owner set aside to buy stock, pay wages and keep afloat.
Thankfully, the government is taking this issue seriously and put new legislation in place forcing large companies in the UK to report twice a year on all payment practices including the average time it takes to pay invoices. Through transparency and public scrutiny, the government hopes this duty to report will encourage large businesses to pay small suppliers on time.
This is a huge development for SME bosses as more reliable payments will provide more certainty over when they will have money coming into the business. The ability to better manage their cash flow will give them the financial confidence to thrive, and help them to be a continued vital contributor to the success of the UK economy.
This legislation is now in place, and only time will tell the impact it will have on one of the biggest issues facing small businesses. Whilst this marks one step closer to tackling the late payments problem, it is still a long road ahead, and small business owners need to be doing all they can to pre-empt and tackle this issue head on. Here are some suggestions:
Get on top of your finances
Having a complete overview of what’s coming in versus what’s going out will enable a business to forecast better. It will give a clearer idea of when payments are due and enable business owners to chase at the right time. There are many different management tools available to provide owners with real-time access to their finances. Getting a complete look at the health of your business at the touch of a button also enables you to make better-informed business decisions very quickly.
Consider a move to electronic invoicing
A move to electronic invoicing or even immediate card payments has the potential to significantly improve small businesses” cash flow. It can save valuable time by automating the entire process, as well as making it easier for customers and suppliers to pay which encourages swifter payment.
30-day payment terms
This is a standard time-period for payment terms and if a business has this in place, they should start chasing from day 31 to get paid as quickly as possible. The longer a job is completed without payment, the more difficult it will become to get paid.
Push large enterprise customers harder for payments
Consider issuing penalties or adding interest for outstanding payments from those big businesses that are paying late because they?re out to protect their own cash flow. Not enough small business owners are doing this because they fear losing business from their large enterprise customers, or perhaps they just aren?t aware of this right.
Set money aside for when times could be tough
Having some reserves can provide the reassurance needed if something goes wrong and payment is delayed. Build in a buffer and don’t touch it unless absolutely necessary.
Build the best possible relationships with your customers
The importance of building a good relationship extends beyond retaining the loyalty of your customers. It sounds obvious, but if business owners take the time and effort to get to know their customers personally both usual contacts and those in their finance teams they?ll be less likely to cause complications when it comes to making payments.
Small business employers often rely on larger organisations for a consistent and significant revenue stream, but the blame for late payments frequently lies with them. The government’s implementation of the new regulation is one step closer to paving the way to change this but, for now, small business owners need to do everything in their power to combat the issue from the top down to keep their business afloat.
Dominic Allonis vice president and managing director at Intuit Europe