SMEs Urged: Tackle Late Payment

Low Pay

Small Business News – 14th January 2009

As Tesco, the UK’s largest retailer, doubles its payment terms to 60 days, potentially driving smaller suppliers out of business and with the amount owing to smaller firms increasing to over £8.3bn[1] Bibby Financial Services is urging owners and managers to make tackling the issue of late payment their number one priority in 2009.

With more than half [2] (56%) of small businesses reporting that the scale of late payment is getting worse and almost three quarters (72%) of owners and managers claiming late payment is having a very serious impact on their business, it is clear that the time lag between issuing invoices and receiving payment is putting severe pressure on small firms’ cash flow.

David Robertson, global chief executive of Bibby Financial Services, said:

“Small firms have always been vulnerable to late payments from large customers – unfortunately it is a fact of business life. However, as the credit crunch continues to bite, driving down revenue and squeezing margins, many small firms could well be staring bankruptcy in the face. A regular and consistent cash flow is essential to the smooth day-to-day running of a business – particularly a smaller one. The vast majority of small firms simply cannot afford to wait on money they are owed without a severe impact on their bottom line.”

In order to help small businesses combat the issue of late payment, Bibby Financial Services has developed the following New Year’s resolutions to provide useful tips on how to speed up the payment process and improve credit control procedures to safeguard cash flow into 2009 and beyond

Resolution 1 – Always credit check customers

In an ideal world all customers would pay promptly, however in reality this is not the case. The first step to avoiding late payment and bad debts is to always credit check potential customers before handing over goods or delivering a service. This is an accepted and standard business practice and one which shows due diligence on your part

2 – Get your terms and conditions right

A clear set of terms and conditions can protect you from late or non-payment, limiting your liabilities and providing you with some security. Make sure customers are aware of your ‘Ts and Cs’ upfront before doing business with them so that every party knows where they stand from the outset.

3 – Reconsider payment terms for repeat offenders

It may be worthwhile considering tightening credit terms for serial late payers. However, before biting the bullet and reducing payment terms and conditions, try to find out why the customer is consistently paying late as you may be able to come to a mutual agreement with them.

4 – Stay on top of payments

Do not delay when sending statements and invoices. If you don’t do this you can’t expect to be paid on time. If a client has not paid within the agreed terms, always follow it up. If your customers know you are quick to deal with late payment, they will be less likely to delay or ‘forget’ to pay. You could also consider a small discount for reliable customers who regularly pay up on time.

5 – Invest time to safeguard cash flow

Maintaining good, consistent cash flow is all about knowing exactly what is coming in and going out. No matter how busy you are, it is essential you look at your cash position every day. This will give you an accurate picture of where the business is going, help identify late payers, control costs and ultimately manage the peaks and troughs in your cash balance

6 – Keep close to your customers

Make this the year you get to know your customers better. Understanding the way your customers work and their specific requirements may help to reduce late payments by establishing a good working relationship that will suit all concerned. It is also a good idea to keep an eye on customers’ payment trends to spot any potential problems before they become major issues.

7 – Keep the cash flowing into your business

Work smarter in 2009 not harder by reviewing your funding to ensure that it continues to meet the needs of your business. It may be beneficial to take a fresh look at the alternative solutions available such as Invoice Finance, which can help by releasing the cash tied up in unpaid customer invoices, guaranteeing an ongoing flexible supply of working capital.

8 – Protect your business from bad debts

In the current economic climate, it pays to be prepared for bad debts. According to recent research, almost half (47%) of small businesses still have no protection against bad debts. Opting for bad debt protection acts as a safeguard against unpaid invoices ensuring you still get paid even if a customer becomes insolvent.

9 – Have the right attitude

When faced with a late payer, politely but firmly ask for payment to be made. Never be embarrassed about discussing money with customers – if you have kept your part of the deal and supplied the required goods or services, you have the right to be paid.

10 – Understand your rights

If all else fails, UK business owners and managers are entitled to claim reasonable debt recovery costs and statutory interest under late payment legislation. However, the Better Payment Practice Group (BPPG) claims that almost half (49%) do not make full use of this deterrent to late payment because they do not fully understand how it works. In these unprecedented economic times it is more important than ever that owners and managers use all the tools at their disposal to fight late payment – and that means getting up to speed with the legislation and using it, if required.

David Robertson concluded:

“I would urge all small business owners and managers to make this the year you keep your business’ New Year resolutions. There is no two ways about it – 2009 is going to be a tough year for all UK firms regardless of size or industry sector. Those owners and managers that resolve to successfully manage to reduce the impact of late payment on their business by working smarter and adopting thorough credit control procedures are the ones that will ultimately survive and come out of the downturn stronger than ever before.”

To see how three real-life business owners are tackling the challenges from the current market and looking to the year ahead, visit Bibby Financial Services’ website where entrepreneurs Rebecca Davies, Sam Fisher and Maggie Andrews update twice weekly blogs with news of the business challenges they are facing day-to-day, and trying to win an audience with a panel of business experts that includes Dragons Den’s Rachel Elnaugh. Visitors to the site can also view top tips and advice from Bibby Financial Services on everything from business challenges, bad debt protection, and how to cope with late paying customers.

[1] Barclays Local Business survey, 2008

[2] Forum of Private Business, August 2008

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