Late Payments

7 ways SMEs can battle the late payment culture

For too long, late payments have been seen as an inevitable issue that small and medium-sized enterprises face. These owners will often feel uncomfortable about raising it as an issue, for fear of repercussions by being perceived as ‘difficult’, or even jeopardising future work by complaining. This results in a culture where larger corporations carry on settling bills late, often without fear of any retribution.

In this year’s Spring Statement, the Chancellor discussed the issue of late payments, and the government has vowed to make it easier for businesses to receive payments. Time will tell what these changes will look like, but until then, business owners need to be savvy and do everything they can to minimise the impact of late payments on their business.

So, how can businesses battle this widespread issue? As 50,000 businesses become insolvent each year, potentially as a result of not being paid on time, the experts at Opus Energy have shared 7 ways business owners can alleviate the possibility of late payments.

1. Offer alternative methods of payment 

Consumers have adopted instant payment methods. With the introduction of contactless payments, and Apple Pay and PayPal becoming preferred methods of payment, meaning businesses need to be more dynamic, too. Options such as Funding Circle allow for instant payments when cash flow is tight, but does come at a 10% cost. Expanding the available payment options for suppliers could help to alleviate late payments.

2. Go digital: use online tools and automate invoices 

Poor administration and human error are often cited as a major reason behind businesses receiving payments later than anticipated, with businesses using varying and often cumbersome billing procedures. Even businesses with proper and practised procedures in place can have trouble adhering to them at times, but automated invoice software can help. These often allow for more effective processing and can quickly spot and remove duplication, enabling reviewers to approve invoices remotely, as well as quickly detecting fraudulent invoices.

Currently, there are several companies offering similar invoicing services, so businesses need to do their research to ensure that the chosen system will complement their working methods and will be adaptable to their business.

3. Subscription plans for companies who regularly purchase 

Some businesses may be contacting the same suppliers each week or month for similar sized orders. Those that do this could look at adapting these invoices into a subscription or perhaps a retainer plan. This would ensure a constant stream of payment each month. These can be easily amended, with additional invoices processed if the order is larger or smaller than usual.

4. Build up the savings pot

Late payments can impact your cash flow but building up a buffer in a savings account can help to provide cushioning from late payments. Businesses should look into business-specific savings accounts, which offer competitive rates. It’s important however, that funds are easily accessible as these accounts regularly offer better rates when money is locked in for a fixed period.

5. Look into loans and credit cards designed for businesses 

For a short-term solution, or in desperate circumstances, businesses have the fall-back option of using credit cards or loans to support their cash-flow issues. It’s vital however, that before opting for a loan or a credit card, businesses ensure that they are able to pay off the debt without slipping into difficulty. Business loans and credit cards are designed specifically for businesses and will usually offer more favourable rates compared to those aimed at consumers.

6. Employ a finance expert 

SME owners often have to juggle multiple roles including HR, admin, buying, selling as well as finance. So, if or when the money does become available, owners should look to employ a finance assistant or expert. This will need to be a dedicated role, where managing finances is their main priority. Ideally, this person will be able to maintain good relations between customers while chasing payments directly.

7. Offer incentives to receive timely payments 

As mentioned previously, many businesses don’t want to be overly assertive in chasing their larger clients for payment and are often nervous to issue conditions such as 7-day terms. Instead of this, businesses could look at offering reward schemes to give businesses incentives to pay on time. Options such as reduced invoices or loyalty cards and schemes could encourage timely payments.

Ultimately, businesses should be able to rely on timely and correct payments, and not have to concern themselves with continually chasing for payment for work they have already completed. Thankfully for SME owners, the current conversation is in their favour, with the Federation of Small Businesses calling for the government to push through the late payments reforms announced in this year’s Spring Statement.

As business owners know, hounding big clients has the potential to sour an otherwise lucrative and long-term commercial relationship — and so many firms let it slip and just pray for payment soon. But by taking these steps, business owners will be able to maximise their chances of being paid within a reasonable timeframe.

If none of these steps have helped, make sure you know your rights as a business owner. Your next option could include getting specialist advice, negotiating a solution with the help of a mediator or making a court claim for the money. The Small Business Commissioner has a wealth of help and support for businesses.

For more business advice, check out Opus Energy’s Brighter Business pages.