Avoiding the late payment trap
With UK small businesses now owed nearly £26bn in overdue payments, businesses need to do all they can to ensure they don’t become victims of the late payment trap.
Recent findings by Bacs shows that UK small companies are now owed nearly £26bn in late payments, a rise of nearly 40 percent from the same time in 2008. Such statistics make it very clear that the recession is in full swing, and really being felt by small businesses – the lifeblood of the UK economy.
While there are many legal ways of tackling payment term abuse, the Forum of Private Businesses (FPB) points out that many businesses are caught in a ‘Catch 22’ situation, fearing that imposing interest charges on overdue accounts will lead to larger companies refusing to deal with them in future.
However, despite this bleak outlook, there are many things that can be done to ensure existing and new customer relationships don’t add to the late payment burden and put unnecessary strain on business finances. Credit checking new clients for example can often be overlooked in the excitement of wining a new piece of business. However large the client, or well known the company, you should never assume that all is well financially.
Communicating clearly with clients is also as important as making sure invoicing is carried out promptly and accurately. It may seem like an obvious thing to say, but an invoice sent to the wrong person in a company will remain unpaid, however much follow-up is undertaken.
By law, businesses are entitled to charge interest on overdue payment, which is set at the Bank of England base rate plus eight per cent. This legislation doesn’t have to upset your customers either, as its primary aim is to deter companies from paying their bills late. By treating the legislation as an integral part of payment terms, customers will understand their obligations and the way you operate your business.
For many small business owners, it’s not necessarily a case of not knowing best financial practice and how to deal with late payment; it simply comes down to a lack of time. A number of business finance options, including invoice finance, can help alleviate this issue, while helping to bridge the funding gap caused by late payers.
While there are many providers offering alternative finance packages to businesses, it is well worth shopping around by speaking to an independent broker such as Cashflow UK who will advise on securing the best facility to match particular financial circumstances. During such uncertain economic times, it’s also advisable to check that any potential finance facility includes bad debt protection, which offers cover should a major customer become insolvent or cannot settle outstanding payments owed.
While it won’t change late payment culture overnight, by making sure the right processes are in place and leading by example (i.e. paying their own suppliers on time), business owners and managers will be able to reduce the risk of bad debt and insolvency and be able to concentrate on what they do best – running their businesses.
Kevin Weaver
Director, Cashflow UK
Call Cashflow UK today for free, impartial advice on 0800 132 156.
