One of the biggest problems start-ups and small businesses face are late payments. The costs to small business owners adds up to £6.7 billion per year just to chase outstanding invoices.
Clearly this is a major problem for small businesses with limited resources, and tight cashflow, as we highlighted earlier this year. In this blog we’re looking at what you can do as a small business owner to recoup late payments.
Late payments cause problems for small businesses
The threat of late payments is an ongoing problem for small businesses in the UK. The Chancellor of the Exchequer, Phillip Hammond, included plans to “tackle the scourge of late payments” in his Spring statement. This includes a requirement that big companies report how they are fulfilling their payment obligations to small businesses.
According to statistics from the Federation of Small Businesses, about 80% of small businesses have experienced late payments. The bank transfer service, Bacs, calculates that the UK’s small businesses spent £6.7 billion in 2018 collecting money and chasing invoices.
The same data shows that more than 25% of small business owners have had to pay their own suppliers later than the agreed deadline, as a knock-on effect. Just over 28% say they have slashed their own salaries to keep their business going while they wait for payment from large corporations.
Government measures on hiatus
The Federation of Small Businesses (FSB) states that late payments lead directly to more than 50,000 small businesses closing every year. This costs the UK economy around £2.5 million. The Government’s measures are welcome, but, as yet, there is no date set for consultation and implementation. Small businesses are still in the same position regarding late payments, until further clarification comes from the Government.
Tracking payments, chasing invoices and ensuring payment is made is an important part of managing the cashflow of a business. However, it is not always simple, particularly for small businesses and start-ups, which are forced to direct energy, time and money into customer service, business development and content marketing. Chasing payments can take up a large part of a small business owner’s day and keep them from equally essential tasks. If this sounds familiar, here are some tips on recouping payments.
How to recoup late payments from clients
The majority of small businesses are already using accounting software and processing invoices online. If you’re not, this should be your first step. Sending invoices via email means faster processing and fool-proof record keeping.
While a simple spreadsheet can be enough in the early start-up stages, dedicated invoicing software is recommended. This will allow your company to grow and seamlessly deal with invoicing. Plenty of software vendors offer a limited, free platform, so try some out before you decide which works best for you.
Keep invoices simple and professional
This may sound simplistic, but your invoices should be clear and professional, and properly reflect your brand. By ensuring clarity on your invoices, including all company and financial information relevant to both parties, you are simplifying the process of payment collection. Make your invoices so clear that there can be no misunderstanding on either side.
Similarly, displaying clear and accessible payment information will help when sorting VAT and a clear and concise delivery note can be proof of clear communication should there be a dispute. Make your invoices easy to read, with a clear and accessible layout. Your aim should be to make it as simple as possible for the client to pay your invoice. Anything that could be misinterpreted or misconstrued should be omitted.
Give your clients payment options
While some small businesses still collect payments by cheque or bank transfer, be aware that some of your clients may prefer to pay by debit or credit card. In short, don’t assume you know their payment preference, and offer alternative options where possible.
By setting up electronic invoices that allow clients to pay with one click or just a couple of steps, your software should be able to reconcile your accounts automatically. This frees up time that would have been spent manually going through records to ensure reconciliation. In turn, this saves you money.
James Turner, Managing Director of Turner Little Limited, says: “Unfortunately, the reality is that large corporations generally pay their suppliers late. As small businesses are often the suppliers, they are the hardest hit. However, late payments don’t just damage individual companies, but also cause harm to the wider economy.
“This is why the Government are promising to act in favour of small businesses by making larger companies accountable for their payments. The Chancellor is proposing to tackle late payments, but as this is not yet in place, small businesses must take the initiative themselves.
“Small business owners can take steps to improve payment times, by following this advice. Consider how you can ensure the entire payments and invoicing process is as easy as possible for your clients. By using clear, accurate and detailed documentation, you will minimise complications and queries. These can slow down payments even further, so by taking pre-emptive measures, you can cut down on waiting times for invoice payments. These are steps which every small business can implement immediately to help manage cashflow.”
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include consultation, company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.
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