Almost all of us will have to deal with late paying clients and customers at some point or another, but new research from Bacs illustrates just how serious a problem overdue payments have become for the nation’s small businesses.
Most small enterprises owed money beyond agreed terms
According to the latest Bacs survey, small businesses have to shoulder the biggest share of late payment debt – £39.4bn out of the total estimated £46.1bn is owed to SMEs, compared to a mere £6.7bn which is owed to the UK’s largest firms.
And around 60% of small business owners are currently experiencing late payment issues – with the average firm owed over £38,186.
Unfortunately, as anyone who has set up and run a business knows only too well, if customers don’t pay on time, this can create a whole series of cash flow problems, which could eventually cause a business to collapse.
The additional costs of living with overdue invoices
Not only can a lack of cash prevent businesses from paying their own suppliers and staff, but it can also cost extra money in interest and overdraft charges as business owners have to resort to borrowing money while they wait for their own invoices to be paid.
These additional costs, according to Bacs, could add up to a staggering £9bn per year – around one in three small business owners spends £500 per month simply servicing debts racked up as a result of overdue bills from their customers.
This figure doesn’t even take into account the administrative costs of chasing late payers – the numerous phone calls, emails and letters which will undoubtedly be needed before customers are courteous enough to settle their outstanding debts.
The trouble is, even if you agree payment terms upfront, 76% of firms are made to wait at least one month beyond these terms. And, although it may be less risky to threaten smaller customers with enforcement action, small firms are far less eager to take proceedings against larger firms, especially if they are dependent on one or two contracts to keep their businesses going.
Good organisation can reduce late payment impact
Fortunately, there are several tried and tested things you can do as a business owner to minimise the impact late payers can have. These include putting in place robust invoicing procedures, so you send out invoices on time containing the correct details, and know when an invoice is about to become late.
From our experience at Company Bug, using invoicing software is an absolute must for business owners. You’re able to submit invoices to your clients online, track payments in real time, reconcile your bank statements with your company’s accounts, and instantly view the payment status of any of your customers.
For more tips, try our tips for dealing with late paying customers.