Is cash king or is it more important than that!

Late payment continues to be a huge problem small businesses face. As the business community looks forward to a post-pandemic trading landscape, we thought it would be a great time to have a look at what practical steps can be taken to reduce instances of late payment.

For small businesses, in particular, navigating the pandemic has been super challenging to say the least. And as we all know ensuring a stable cashflow has always been a fundamental component onto which a sustainable and profitable business is built. But as we start to enter a post-Covid world, what does this mean for cashflow and will late payments continue, improve, or even erode further?

Reporting on the state of the small business landscape across Europe, the European Payment Report, 2021 from Intrum concludes that in the UK, 62% of respondents are more concerned than ever about debtors’ ability to pay on time, with nearly half (46%) stating they believe the widening gap between payment terms and duration of paying is a real risk to the sustainable growth of their businesses.

Our Founder Steve Timmis comments “All small businesses rely on prompt payment for their goods or services, it could be argued that the small business delivers its goods or services with passion, purpose and dedication sometimes more so than the national brands. Slow payment endangers their very survival. Small business deserves to be paid for good work in a timely way, with 30 days as the suggested ‘maximum’. embedded in both the Good Business Charter.”

Prompt Payment Code

The government has strengthened the existing Prompt Payment Code, which is underpinned by the Late Payment of Commercial Debts (Interest) Act 1998. The Code now requires signatories to pay 95% of their invoices from small businesses (with less than 50 employees) within 30 days. This is half the time previously allowed by the Code.

The Prompt Payment Code (PPC) was created by the UK government in 2008 in response to a call from businesses for a change in payment culture. It established a set of principles for businesses when dealing with and paying their suppliers that commit them to paying fairly and on time.

Late Payment Culture

Despite steps to abolish the late payment culture, it’s still one of the biggest challenges facing small businesses today, research shows that the pandemic has only made things worse. 59% of small business owners have said that bigger companies increased the length of their payment terms during the lockdowns. This creates a cashflow squeeze, which in turn impacts on things like the ability to hire and retain staff.

Xero’s Small Business Insights (SBI), their snapshot of the health of the UK’s small business sector, shows average payment times remain longer than pre-crisis levels. The impact that this can have on a business is huge.

Small businesses are being put under pressure by larger businesses, in some cases being asked to drop their prices by 10% or extending their payment terms to anything up to 90 days.

Here’s our top tips to reduce instances of late payment

  1. Ideally, negotiate shorter payment terms – so there’s less of a chance of an invoice getting lost. It’s best to have these discussions and confirm payment terms as part of the initial agreement.
  2. Overcome politeness – Asking for money is awkward at the best of times. Don’t be afraid to ask for what you’re owed. When an invoice is overdue, send a reminder or make a phone call straight away. An accountant can often help with these uncomfortable conversations, or you can use technology to automate the chasing of invoices.
  3. Adopt the right technology to make keeping on top of finance simpler – Xero automates the process of chasing invoices, so you can track cash flow and invoice payments in real time. There are more specialised apps such as Satago that are focused on debt collection.
  4. Make sure your terms and conditions are up to date and prepared by a solicitor – Large businesses have been know to take advantage of small businesses where they may have weak or very little T&Cs. Make sure your documents and processes are strong.
  5. Good discipline – Start by sending a gentle reminder before an invoice becomes due and follow up when they first become due, don’t wait until they are 30 days overdue.  Wishful thinking doesn’t get you paid!
  6. Charge Interest – After 30 days have passed from the date payment was due, you are legally allowed to charge statutory interest on top of the original invoiced amount. There might be hesitancy to do this amongst the small business community so as not to damage relationships.
  7. Accept online payments by adding a ‘Pay now’ button to your online invoices and get paid twice as fast by connecting to a payment service provider such as Stripe, GoCardless and others.

How can Sempar help you?

At Sempar we have our very own credit control service, where our professional team will chase in the payment of your invoices, we also believe in automation and our tech team can help you plug in apps like Satago that will chase in you invoices whilst you focus on growing your businesses. Simply contact our expert team today on 0330 22 33 660 to discuss how we can create a bespoke package to suit your circumstances.