- Posted Thursday Apr 26, 2018
The Challenge of Late Payments
Always a challenge to any business, fuelled by concerns over Brexit and the fluctuating pound the problem of delayed or late payments is reaching epidemic proportions – and is potentially fatal for the smaller business. Indeed, it is estimated that 50,000 businesses close each year due to late payments, costing the economy £2.5bn.
A staggering 84% of small businesses profiled by the Federation of Small Businesses (FSB) claim to have been effected in this way and for many, late payment is the norm rather than the exception. As a result, agreed payment terms are stretching, placing unmanageable pressure on cash flow and crippling small companies and start-ups.
It is estimated that small businesses spend up to 10% of their time chasing overdue invoices (adding up to 1.5 days each month) and when payment is late, productivity invariably declines, creating a knock-on cost to the business.
However, there are ways that businesses can manage late payments. Ensuring prompt payment every time is the ideal to aspire to, and risk can be minimised by implementing the following steps:
- Lay out clear payment terms before a quote has even been accepted. This way the customer is notified in writing at the start of the relationship on how (and when) they need to pay.
- Send invoices as soon as the invoice is due and follow up regularly, and if needs be phone the customer. This prevents payment inertia and will save problems further down the line.
- Keep accurate records and produce transparent invoices that show exactly what is being paid for and when.
- Offer easy and varied payment methods. By making it simple and as fast as possible for your customers to pay, you can save a lot of time and remove a potential barrier for payment. There are many new software applications directly targeted at small businesses which make this process far more efficient.
- Have a clear, step-by-step process for the entire payment collection process from quote, staged payments, all the way through to chasing the payment when the due date is passed. This will allow you to track each project and act accordingly the moment a payment goes late.
The general rule of thumb is that the later a payment gets, the more difficult it is to collect debt. By sticking to a clear process this will provide early visibility of any potential bad debts.
One solution is to look for an escrow service, such as that offered by TrustMark, that protects both consumers and tradespeople. These services are built around a clear contract of work with mutually agreed milestones that trigger payment to the trader.
The escrow service ensures the customer will always get exactly what they have paid for and the tradesperson is guaranteed 100% payment for a completed job.
If you would like further details on escrow services check the Trustmark website here: https://www.trustmark.org.uk/consumers/trustmark-escrow