Late payments are a big problem for businesses of every size, but they disproportionately impact smaller and medium-sized enterprises (SMEs). The latest figures show that UK SMEs are owed £14bn by their customers. Although that represents a significant reduction on the £30.3bn figure five years ago, it is still severely hampering business performance.
Smaller companies that do not have the reserves of multinationals need cash-flow to be able to innovate and grow. They need to recruit and train employees, buy new machinery and equipment, invest in R&D and pay their staff and suppliers. When invoice deadlines are missed, it can put their very existence at risk. In fact, one-in-five businesses say they would be driven to bankruptcy if they were owed between £20,000 and £50,000, while 7 percent of businesses admit they are already in the danger zone.
Refusing to accept the late payment culture
Such is the scale of the problem that companies of all sizes are starting to accept late payments as a cost of doing business. With nearly a third of companies facing delays of at least a month beyond their normal payment terms, it’s essential this is an issue businesses confront head-on.
Simply accepting the late payment culture brings a huge amount of stress and wasted time spent chasing payments, but the impact is also much more profound. 14 percent of businesses say they would not be able to pay salaries if their biggest customer missed their invoice deadlines, while 11 percent said they would be forced to make redundancies.
Finally, why should you accept late payments for goods/services you have provided? It doesn’t have to happen.
Three areas for improvement
Three areas of improvement have been identified that can help businesses counteract the late payment culture. Firstly, companies must recognise that late payments are not acceptable. No customer should be able to put the future of your business at risk. Robust plans, guarantees and payment plans need to be put in place.
Secondly, technology can be put in place to ensure payment errors are minimised and processing issues are identified and resolved before payment deadlines are missed. Finally, establishing a sense of trust and mutual respect between customers and suppliers is crucial to making sure payments are made on time.
The role of Direct Debit
Direct Debit is the most effective way for businesses of every size to collect payments from their customers on time. Once they have been set up and authorised, Direct Debit payments can be drawn directly from customer accounts to put you in full control of the money you collect.
One of the reasons businesses have shied away from Direct Debit in the past is a perceived lack of flexibility, but with modern Direct Debit, that’s simply not the case. Direct Debit can be used to collect:
- Fixed subscription and membership payments
- Regular and variable payments based on usage
- Payments from customers with flexible terms
- One-off payments
Direct Debit is a convenient, affordable and safe method of collecting payments, but most importantly, businesses know exactly when they will be paid. That allows them to budget effectively, pay staff and suppliers and grow the business.
It’s time to take control
When you’ve worked hard to grow a business, it can be incredibly frustrating to see that put at risk by a customer you trusted to make a payment on time. Direct Debit puts you back in control. Find out more about Direct Debit collections and processing or get in touch with London & Zurich to apply.