Sonovate’s recent research has found that two thirds of the SMEs surveyed say that late payments from clients or customers have a negative knock-on impact on their ability to pay contract workers on time.
This is a concerning comparison to last year, when just half expressed that late payments dictate their ability to pay contractors on time.
The consequence of persistent late payments of earned wages to contractors has a universally detrimental impact on the UK’s SME community. Half of respondents to Sonovate’s SME study say payroll issues can cause them to miss out on quality contract talent, and over a third say they have even lost contract workers as a result of not being able to pay them promptly enough.
Late payments from customers impacts business income and cash flows in. This can prevent your small business’ ability to grow as it has less money to hire new people, expand to new offices or invest back into the business as examples.
It can also impact the ability of your business to repay its own debts, which in turn could lead to greater interest payments due and also affect its credit score which can affect the ability to get a business loan or further business loans in the future.
In worst case scenarios, a business may be forced to close.
What can I do if my business is being paid late?
First of all you should ensure that you have a good routine system in place to chase up late payments quickly and easily. You should communicate with any late paying customers to try and reach an agreement that you are happy with regarding payment of your invoices.
Moving on to a cloud-based accounting software can really help to save time and resources in this area, as you can set up automated reminders to your customers on any outstanding invoices before their payment is due.
You could also offer incentives such as discounting your goods or services sold to customers if they either pay up front or agree to setting up a direct debit plan for payment.
If they have still not paid, you can also contact your customer in writing to explain that you will be exercising your statutory right to claim interest and compensation for the debt recovery costs under the ‘Late Payment’ legislation. Further information can be found on GOV.UK: Late commercial payments: charging interest and debt recovery.
If they continue to fail to pay, stop supplying any further goods or services until you receive what is owed. Barclays’ research has shown that for those who have been on the receiving end of late payments, 80% said that they would refuse a job with a potential customer if they were known for paying late.
In the background, it is important that you are continually monitoring your business’ cash flow. Cash flow forecasts are imperative to understand the expected money in and out in the future to ensure that the business is not operating with a constant cash flow deficit.
Understanding what your cash flow forecast means is a lot more than just looking at the numbers. Our Business Consulting specialists can work with you to fully understand the analysis and help you set, monitor and adjust your targets and budgets. The numbers can also be changed to show the impact of certain scenarios to see how these could impact future cash flow.
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