Sorry, we can’t pay you today
It’s payday, but instead of your payslip, you receive an email “Afraid we’ve changed our payment terms. You’ll be paid every six weeks from now on. Hope you don’t mind. If you do, we can always find someone else to do your job”.
What about your mortgage? Petrol? Utility Bills? Mobile phone? Food for the kids? How will you survive a month of outgoings without being paid? Sounds an unlikely situation. However, it’s a situation that many small and medium sized businesses find themselves in because customers pay late or insist upon long payment terms.
Evidence shows that more than half of small businesses are not paid promptly by large companies, with an average payment time of 58 days. Nearly double normal contract terms.
The main reason for funds being held are customers trying to ease their own cash flow problems, but this pushes the financial risks on to their suppliers. The impact on smaller businesses can be huge. Other than the more obvious problems of not being able to buy equipment, pay staff wages or having to put plans to expand on hold for example, in more serious cases, it can result in SMEs closing.
So, how can a business minimise the risk of unpaid bills?
- Setting up automated payments at the very beginning of a contract with a customer. Whether it’s a direct debit, standing order or automated card payments, there is a solution to fit business of all sizes across many industries.
- Payment on account. It’s important that you protect your assets. Although there is value in trust when it comes to business, it works both ways, and many customers won’t be offended by you asking for payment upfront.
- Interim payments. For larger projects, it may benefit both parties to have more regular payments of smaller amounts rather than a large invoice at the end.
- Clear policies and procedures on payments. If you have a recurring client, have a point where work will cease should payment not be received. AND be sure to follow these. It is very natural to push boundaries and see what we can get away with, you see it with children. If you aren’t enforcing this message, why would someone pay attention?
With over a third of UK small business saying that chasing aged debt is affecting their cashflow, its vital to get this right from the outset.
Many SMEs however feel that they are rarely in a position to challenge their customers for fear of damaging the business relationship. But there are options. Outsourcing is becoming hugely popular and is an extremely useful tool when a ‘bad cop’ is needed. Not having a close relationship to your suppliers or having invested interests means they have no problem with addressing these issues. And with small UK businesses chasing an estimated £14.9 billion in late payments (58% owed up to £10,000) and 72% spending up to three days per month chasing the money they are due, costing on average £11,000 per year in time, it is clear to see why outsourcing this task is so popular.
If you are having problems and not sure where to turn, why not contact us for a free confidential chat.
Gemma Wall
01305 470 021