Businesses across the globe have been plagued by late payments for many years, an issue that is showing no signs of abating. Recent research has shown that in the UK alone, the average small business is owed an astounding £25k in late payments, putting not only their own cash flow under a great deal of strain, but creating a domino effect throughout the entire supply chain.
The research, carried out by Xero, took into account over 2 million invoices across thousands of businesses. An analysis found that over three quarters of these businesses were due money that had fallen outside of payment terms, at any one time. The average late payment on 30-day invoice terms was shown to be 64 days, double the payment terms agreed between two parties.
The impact that late payments can have on small businesses in particular is significant, with an estimated 50,000 businesses failing each year due to cash flow difficulties. This not only affects the business itself, but their suppliers, and the wide economic climate.
How to reduce risk to late payments
The risk of late payment can never be completely eliminated for a business, but there are certain steps that a company can take to reduce said risk and therefore maintain positive cash flow.
Prior to agreeing any contract with a prospective client, carrying out a comprehensive credit check on a company can provide detailed insight into their current financial standing and, for some, their previous payment history. The information revealed during this credit check should provide your business with the adequate information to weigh up how much of a risk a prospective customer poses.
Ensuring your invoices are sent swiftly following the completion of any work, or at the agreed interval, is vital to maintaining cash flow throughout the month. In addition to this, ensuring that all details on the invoice are correct and that it is sent to the appropriate person is essential, as two of the most common reasons for late payments are unreceived invoices and incorrect details.
Credit control, for many, can be daunting, but one that is essential to getting paid on time. Chasing for payment of an invoice should ideally start as soon as an invoice has fallen due, so as to deal with any issues swiftly and gain a confirmed payment date from your customer.
Is your business struggling with late payments from customers? We offer a number of services support the running of a business and its cash flow, whether it is invoice finance or back office support you require, we can offer your business the perfect solution. Contact our team today for more information.