How Much Do Late Payments Cost Your Business?

Signing payment mandate

Late payments are one of the biggest scourges of the UK economy. Widespread late payment has lead to British SMEs facing a collective £40 billion shortfall as they wait for their customers to cough up.

UPDATE: Jan 2016 – according to SME Insider, SMEs are now owed £255 billion in late payments, with 1 in 5 owed more than £25k and 1 in 10 more than £100k. An astonishing 43,000 SMEs are owed more than £1 million!

A downward spiral

SMEs can be forced to wait long periods to receive late payments, leaving them without the cash flow to pay their suppliers and providers. This creates a knock-on effect that only worsens the situation.

While small companies are suffering, some larger corporations are also feeling the sting. Late payments don’t just mean a bit of a wait, they accrue expenses in their own right, creating a huge drain on business resources. Costs include:

  • Working hours spent chasing late payments
  • Interest on payments missed due to late payments
  • Admin fees
  • The adverse effect on your credit rating caused by missing payments as a result of late payments
  • Making use of overdraft facilities, credit cards etc.

Late payments cost money

One-third of UK SMEs surveyed in 2014 claimed they were spending £500+ per month, just on handling late payments. Those affected can be teetering dangerously close to the edge. Among the 60% of businesses affected by late payments, £38,000 is the average outstanding amount they are owed. A quarter of these businesses admitted that if their late payment figure hit £50,000, they’d be looking at bankruptcy.

Stunted growth potential

And it’s not just money that companies are losing out on, it’s also growth. Cash flow and the ability to invest is crucial to business growth, and without this lifeblood, how can companies expand and flourish?

If you’re a business paying money to be owed money, we’re sure you can benefit from our top tips to keep cash flowing. Here are a few resources and routes you could consider to reduce the cost and negative impact of late payments…

1. Know your rights

Legalities of late payments

If an invoice is late according to your clearly stated payment terms, you may be able to start charging interest on B2B late payments. Of course, you may want to consider what effect this will have on your relationship with your client. However, if it’s time for them to cough up, make sure you’re aware of the options available and what action you’re entitled to take. The .gov website has the facts you need.

2. Do your research

Signing payment mandate

Before you launch into a contract with a client, make sure you know who you are doing business with. Running a check with Companies House will reveal legal/payment history and turnover, giving you insight into their ability to pay on time.

3. Learn about credit control

Forum of Private Business

Maintaining effective credit control is half the battle when it comes to staying on top of late payments. The Forum of Private Business have put together an overview of credit control, which will teach you the basics and a little extra.

4. Consider setting up Direct Debits

Signing a direct debit mandate

This route isn’t for every provider-client relationship, but in most cases (particularly for B2C and B2Bs sending out regular, predictable invoices), arranging Direct Debits will ensure you are paid on time, every time. Putting your customers on a Direct Debit is much less hassle than arranging an escrow or having that awkward “half now, half later” conversation.

The London & Zurich team can answer any Direct Debit queries you might have and will guide you through the whole process. Speak to our expert consultants today to find out if Direct Debit would be a smart cash flow boosting option for you.

How much money does your business lose as a result of late payments? Do you have any helpful tips or resources to share to help others combat the costs and negative impact of late payments?

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