According to research from BACs published in 2018, almost half of the UK’s SMEs receive late payments. The average is 72 days. In cash terms, this represents £26 billion owed. Paul Daine of Premium Collections, has this to say about cash-flow issues for small and medium sized businesses, “Chasing payments is a huge barrier to productivity and growth. Late payments are not just an inconvenience, because they can make the difference between keeping afloat or actually going out of business.”
If late payments are so prevalent, does this represent a crisis within business culture itself, where cash flow has become an inherent problem?
Why cash flow is critical
For a great many SMEs, they have expenses they must meet, regardless of their turnover. “You might have rent to pay, staffing costs, stock. Often it’s a balancing act.”
Incoming cash flow should stem from customers or clients, or from investors, interest on savings or investments. Achieving and maintaining positive cash flow is vital for businesses to maintain their heads above water, but also to help them grow. “Without cash flow, your possibilities are more limited. You won’t be able to make the most of opportunities, while your competitors might.”
Is poor cash flow a cultural issue?
A list of the 35 worst offenders for late payment following research from Business Expert, contains several familiar names and brands. Companies with annual turnovers of £36 million or more are obliged to report to the government about how they make payments. In a 2018 government report, only 316 of over 6,000 businesses listed stuck to 30 day payment terms.
A further 20% paid more than half their invoices late. “It’s not surprising that SMEs in the UK are owed over £40 billion in late invoice payments. It is worrying though, because SMEs are the bedrock of business in this country.”
Is it possible to change this late payment culture that is damaging cash flow?
“It’s all about process, and knowing, systematically what actions you must take to help ensure payment on time.” One of the fundamentals for SMEs is to put sound credit management practices in place. “Chasing payments can be time-consuming and distracting. It can mean wasting days, if not weeks, of unproductive time. The best way for businesses to avoid this is to put the right processes in place from the outset.” These should include things like clear payment terms; checking the credit status of prospective customers; having effective invoicing procedures; protecting your credit; and, where necessary, using professional debt recovery services.
Making a Cultural Shift
“Late payment may be something larger companies practice, but it doesn’t follow that SMEs must simply absorb this, or worse, adopt it. Cultural change comes from individual actions. Put your processes in place to help ensure your cash flow stays positive.”
Read the Premium Collections Special Report on Credit Management, Cash Flow and Getting Paid. To discover more about your debt recovery options, please call Premium Collections on 0161 962 4695 or visit premiumcollections.co.uk