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Getting paid on time is one of the biggest challenges facing SMBs.
In fact, research by Liberis showed that 72% of SMBs are spending up to 3 days every month chasing money they’re owed.
In addition to the impact on cashflow, it costs each business an average of £5,000 per year in time spent just trying to get these invoices paid.
The impact on small businesses should not be underestimated. Apart from the financial costs, there is also a significant impact on the mental health of small business owners.
The impact of Brexit
Following the official exit of Britain from the European Union on 31st January 2020, there is understandingly some nervousness about what the future holds for businesses.
Sadly, some companies are adding this to the many reasons why invoices are paid late. We see this in the Bottomline Business Payments Barometer which revealed that 92% of financial decision makers admit to paying suppliers late.
That’s why the UK’s Small Business Commissioner called upon companies to avoid the temptation to use Brexit as an excuse ‘to delay supplier payments to ease and protect cashflow’. If companies come together to pay each other on time, the resulting increase in business certainty and productivity would make the whole economy much stronger.
The impact of cash flow disruption
Managing the flow of cash coming in and leaving your business is a tricky balancing act. After all, you want to pay your own suppliers according to good business practices. However, you need to collect customer payments in order to fund your own day to day commitments.
Nearly half of SMBs say late payments put their business at risk of failure, according to research by Dun & Bradstreet. Other serious consequences include:
Delays in paying suppliers which can halt the supply of goods and services
Inability to pay employees
Hinder future investment and growth opportunities within the business
There are many ways that as a small business you can avoid late payments and select an option that’s suited to you and your customers best interest.
Know your rights
Many small businesses are unaware of their legal rights when it comes to being paid on time. For example, you can legally charge another business Statutory Interest of 8% plus the Bank of England base rate if they are late paying for your goods and services.
The good news is that Statutory Interest doesn’t have to be explicitly stated in your terms and conditions. But it’s worth noting that it won’t apply if you have specified a different rate of interest in your commercial contracts. Sometimes the mere threat that you plan to charge interest could encourage late payees to cough up. You can also claim for reasonable costs each time you try to recover an outstanding amount too.
But for most entrepreneurs, these actions are seen as a last resort with the priority being to preserve the customer relationship and avoid damaging potential future sales.
A less confrontational approach to getting paid is to improve the efficiency of how you collect payments in the first place.
Good invoice practices
According to the Bottomline Barometer, 33% of businesses cite mistakes on invoices as a reason for paying suppliers late and 17% say the supplier didn’t chase the invoice. You can overcome both of these challenges in one fell swoop by following invoicing best practice.
Cloud-based automated payment solutions allow you to automatically generate invoices using accurate data from your customer or billing system. Invoices are sent in a timely manner using the customer’s preferred channel such as email or physical mail.
By sending invoices by email, you avoid the need for print and post costs and benefit from greater visibility over who has and hasn’t paid you.
Digital, multi-channel approach
The latest cloud-based payments technology allows you to use a wide range of channels from Direct Debit to online card payments. This can help to proactively address non-payment issues and payment delays as well as target common excuses and repeated late payments from the same customer.
Protect cash flow with Direct Debit
Collecting by Direct Debit is a great way to smooth out cash flow and ensure regular payments are collected from customers on time and in full. Simple to set up and operate, they are well suited to many types of customer transaction.
With the growth in recurring payments (see our Business Guide on Subscription payments), Direct Debit offers many advantages over other ways of collecting customer payments. They can lower your admin costs, reduce the risk of missed or rejected payments and offer greater insight into when you will actually get paid.
Online and card payments
Offering the widest choice of payment options means that you will need to set up and process online and card payments. This isn’t as daunting as it sounds.
Payment solutions such as Bottomline’s PTX can simplify the set-up, onboarding and automated processing for card collections and Direct Debit. These can be taken via your website using a hosted payment form or completed over the phone with a member of your team.
Card payments ensure you receive the money up front in any transaction. You can manage one-off credit and debit card payments; set up a continuous card authority for recurring collections or take a one-off card deposit with subsequent payments via Direct Debit for maximum flexibility.
Set reminders and be persistent
The use of automated reminders both before payments are due and as soon as invoices become overdue can help to reduce outstanding debt.
A good payment system will allow you to track customers that have not opened electronic invoices and address email non-delivery in a proactive manner.
Invest some time analysing your late payers. If it is always the same customers then revise your payment terms, or even turn these customers away – they could be costing you far more than the profit margin they contribute.
Business uncertainty is nothing new. After all, we’ve come through financial crises and recessions in recent memory. Exactly what Brexit means for businesses should become clear by the end of the year but you can protect yourself from unexpected cash flow problems by taking some sensible precautions.
Start by reviewing your internal processes along with existing customer and credit agreements to see where you can introduce additional measures to mitigate the risk of late payments during the Brexit transition period.
Then make sure you are following best practices and investing in payments technology to minimise the risk of late payments holding your business back.
Sometimes, the best way to tackle big problems is to break them into smaller pieces. For businesses, this applies to a pricing strategy that can be used to increase acquisition rates, boost growth and generate greater loyalty. What’s more, it helps to create a more stable and predictable revenue stream.
Recent research by Bottomline into the thorny area of late payments shows that 92% of financial decision-makers admit to having paid suppliers late. Sadly, it is not a new trend. If we go back a bit further we see that in 2017, a slow payer ethic emerged as the biggest challenge to getting paid on time. In 2018, the research revealed that a surprising number of financial decision-makers were actively delaying payments as part of their cash management strategy.
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