How can SMEs avoid Late Payments?Nizam Yusuf
SMEs bear the brunt of Late Payments in the UK, according to research by Bacs
For SMEs (employing up to 250 people) cash flow is critical and they rely on prompt payments to survive. But the fact is, they’re shouldering most of the UK ‘late payment’ burden – Bacs reckons that SMEs are owed almost £40 billion compared to the £6.7 billion owed to large corporates!
Bacs estimates that 60% of SMEs are experiencing late payments, and that the average SME is waiting for an eye-watering £38,000 of late payments at any given time!
Even more worryingly, a third of SMEs report that they spend around £500 per month having to deal with late payments…
Is anything being done to level the playing field for SMEs?
What is the government doing to help SMEs get paid on time?
Mike Cherry, National Policy Chairman for the Federation of Small Businesses (FSB) says, “Small firms simply can’t be expected to lend interest free to larger companies, which late payments and extended payment terms force them to do.”
Mike then expressed his hope that the government would tackle the issue head-on in the Small Business Bill, which was introduced on 4th June 2014.
Although this Bill does include action on late payment terms for smaller suppliers, some believe it doesn’t go far enough – and have expressed disappointment that there is no specific timescale for payments to be made by.
The Small Business Bill will complete its passage through both the House of Commons and House of Lords by March 2015, so we’re looking forward to seeing what impact it has. Let’s hope it has some ‘teeth’ and helps SMEs grow and drive forward the economy!
In the meantime here are our ‘Top 5 Tips’ for avoiding late business payments:
- Get paid electronically. Using this method usually means that funds are cleared and ready for use on the same day – earning interest straight away.
- Check up on your customers. Avoid risks when supplying new customers by running a credit check. In fact, do regular checks on all your customers – not just the new ones – to ensure you’re aware of their current financial position and payment capabilities.
- Take advantage of Bacs Payments. Direct Debits and Direct Credits are good, paperless payment options that can save you time and money, so look for a good Bacs approved solution supplier!
- Be proactive. Always chase late payments early (or use a payment provider that automates this process). Prompt action can often identify payment problems, and give you enough time to resolve the situation.
- Use the ‘carrot and stick’ approach. Demand interest on late payments – you are legally entitled to it. And if you have customers who regularly pay you late, familiarise yourself with late payment legislation. But it doesn’t have to be all doom and gloom – why not find a way of rewarding your customers who always pay on time? ‘Early bird’ discounts, for example, will give them a great incentive to keep the cash flowing!
If you’re experiencing late payments yourself and are worried about their effect on your bottom line, then why not contact AccessPay for a chat? Our payment and cash management solutions are paperless, proactive, and have been designed to identify and highlight any possible payment issues… all of which helps our clients improve their cash flow and do better business.