How businesses can deal with late payments
The ability to manage cash flow effectively is an essential part of any successful business, but late payments still leave firms facing difficulties.
Research in the summer from trade body R3 revealed that late payments are the cause of one in five insolvencies.
The issue arises as there is a payment gap between when firms provide products or services and when invoices are paid.
While the Government has attempted to solve the issue with the Prompt Payment Code – an attempt to make paying businesses within 30 days the norm – it is estimated that UK SMEs are owned around £250 billion in late payments.
What should a small business consider?
A key factors for firms is to agree terms at an early stage and to clearly detail those terms on all payment invoices.
Although a business may not want to upset its customers by chasing for payments, the financial stability of the firm should always come first.
At the same time, small firms can also increase their chances of being paid efficiently by ensuring that all of their own documentation is sent out on time.
Administrative tasks may not be viewed as a priority by firms, but they are absolutely essential to ensuring prompt payment.
Why organisation is vital
In order to manage funds and reduce the risk of insolvency, firms should ensure they are organised throughout the process.
This extends from managing when invoices are due to actively chasing those that need to pay for services – a failure to do this can encourage bad habits and that ultimately harms a business.
In instances where payments are long overdue, a firm could consider alternative finance options to plug the gap in their cash flow in the short term – while this is far from an ideal solution, it does at least provide a way to ensure other aspects of business are not negatively affected.
By Phil Smith
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