Are late payments a thorn in your side? You’re not alone. Late payments cost the UK’s small business owners £6.7 billion a year.
In light of this ongoing threat, Philip Hammond announced in his Spring Statement that the government plans to “tackle the scourge of late payments” by large corporations to their smaller suppliers. In the Statement, Hammond promised the UK’s 5.6 million small businesses that the government would clamp down on late payments by introducing a requirement for big companies to report on how they pay their suppliers, a little like how they must report on their gender pay gap.
According to the Federation of Small Businesses (FSB), four in five businesses have been paid late, with far-reaching consequences. According to a report by Bacs, in 2018, British small businesses spent a total of £6.7 billion chasing money that they were already owed. Late payments also cause a domino effect; the same report found that over a quarter of small business owners had been forced to pay their own suppliers late as the result of a late payment. 28% of small business owners reported having to cut their own salary in light of late payments, just to keep their business afloat.
According to the FSB, late payments result in the closure of more than 50,000 UK small businesses every year, at a cost to the economy of £2.5 billion.
As of yet, no timeline has been provided with regards to the consultation on, or implementation of, Philip Hammond’s proposed regulations. In the meantime, therefore, it still falls to small businesses to protect themselves as best they can from late payments. Tracking payments is an essential part of cashflow management, but it isn’t always easy. With that in mind, here are some tips on how to stay on top of your cashflow and avoid late payments.
- Going digital. Today, everything is going digital and there’s no reason that your invoicing should be any different. It stands to reason that an invoice sent via email will allow for faster processing than one that is sent in the post. This is one of the many benefits of making the move to cloud-based accounting software, as a great deal of this process can be automated. For example, cloud accounting software will often send out automated reminders on unpaid invoices, negating your need to oversee this process.
- Make sure your documentation is kept simple. It might sound obvious, but try to make sure that your invoices are up to scratch. Including all of the necessary company and financial information will provide clarity to both parties and ensure that there can be no misunderstanding. This helps to reduce the chance of receiving any queries once the invoice has been raised, which will obviously slow down the whole process. Keep your invoices simple, uncluttered and easy to read; make sure that they display clearly on mobile devices and make the payment process as simple as possible so as to avoid delay.
- Offer a variety of payment options. Don’t try to assume your client’s payment method of choice. Many small businesses still predominantly collect payments via bank transfer or cheque, but many clients/customers prefer to pay by debit or credit card. If you offer alternative payment methods where possible, the client has fewer excuses for delaying payment.
Cashflow Management with Phebys Accountants
Until the government’s plans become a reality, it’s up to small businesses to protect themselves from late payments. For help with cashflow management, contact Phebys Accountants on 01480 896267, or email firstname.lastname@example.org.