Late payments is an increasingly chronic issue for businesses of all shapes and sizes. Delayed payments is an ethical problem but paying late, for no valid or legitimate reason, is unethical. Research conducted by Intrum Justitia into the impact of late payments on businesses reveals that late payments threaten the survival of 33% of businesses. Surprisingly, the majority of the respondents believe that delays in payments is intentional.
• Approximately 81% of SMEs cite late payments as a problem for them.
• 51% of SMEs believe their ventures would run smoothly if they had fewer late payments.
• 82% of SMEs have up to £25,000 in late payments.
The Issue with Late Payments
Late payment debt can have a catastrophic effect on businesses that operate with little or no cash reserves or no credit to rely on. Ventures that are paid based on invoicing for goods or services delivered are bound to experience delayed payments. Nonchalantly perceiving receivables as ‘better late than never’ could mean the death or survival of a business.
The main problem businesses face when experiencing delayed payments is the effect it has on cash flow. Cash flow can mean the success or failure of SMEs. This is because these businesses are unable to absorb the costs of late payments. The effects of negative cash flow on businesses include diminished opportunities for current and future investments leading to hampered small business growth.
But it’s not just small businesses. Late payment is also a threat for larger businesses with revenues over £2.5 million.
Effects of Late Payments
Among the problems created by delayed payments for good and services are:
• Employees being paid late.
• Suppliers being made to wait for payments, which may strain business relationships.
• SMEs struggling to raise capital to make investments to grow their ventures.
• Wastage of valuable time chasing payments.
Tips for Dealing with Late Payments
Here are some invaluable tips for speeding up payments and improving a business’ cash flow:
1. The contract and terms of the agreement
The first step towards speeding up the payment process is checking your contract with the client. Here is where you detail crucial factors in the terms of payment. Some concepts to include in the negotiation arsenal are asking for an upfront deposit, providing the option to pay in instalments at key stages, detailing timelines for approval on the client’s side, and charging a late payment interest.
2. Project management and invoicing
With project management and invoicing, try pushing the team to deliver so that you can invoice your clients faster. Also, encourage early completion and delivery while paying attention to the delivery requirements. Staying on top of the payment process and encouraging prompt sign-off is also a great way to speed up payments.
3. Follow-up with your customer
An effective way of eliminating delayed payments is to contact your customers immediately if a payment is late. Know why the payment is late to help avoid such scenarios in the future.
4. Avoid a cash flow crunch
Cash flow is an important aspect of your business. Avoiding its crisis will help protect your business and allow you to plan for its growth. To ensure you don’t go through a cash flow crisis, consider speeding up payments from customers by offering a discount for early and timely payments. You can also defer outgoing payments when possible and arrange temporary credit with your bank.