Six Ways SMEs Can Prevent Late Payments Ruining Their Business
This summer, a report from Siemens Financial Services showed that outstanding payments can cause UK SMEs to miss out on over £250 billion of liquid cash flow. Now that’s a lot of money!
It’s not that policymakers haven’t tried to help tackle the UK’s culture of late payments – four years ago, legislation was brought in under the European Union’s Late Payment Directive, which gives SMEs the right to compensation when bills are paid late.
Also, a voluntary scheme called the Prompt Payments Code, under which larger companies commit to paying suppliers on time, was introduced to support SMEs.
Yet, despite these efforts, SMEs are still getting a raw deal, with large customers, in particular, failing to pay their bills on time. The effects of which can be devastating.
It’s clear that the need for a new approach is greater than ever, especially in the UK. Other European countries appear to be getting to grips with the issue; in recent years there’s been a dramatic reduction in the value of invoices paid late in countries including Germany, Switzerland, Ireland and Belgium. Britain, however, has seen no such easing, despite its relatively strong economic performance.
Given the slow progress in Britain, small businesses need to take action for themselves. It’s understandable that they don’t want to confront larger suppliers with legal action, however, it does make sense to do everything possible to help prevent late payments from becoming a real problem.
Smart finance experts at Solna offer advice on how to avoid overdue bills:
1) Do your research – it’s a good idea to use credit reference companies to run credit checks on new customers before offering them credit.
2) Spell it out – make sure you lay out your payment terms, talking them through with every new customer and including them on every invoice you send. Make it clear you will take action to enforce your rights to claim financial compensation if bills are paid late, including interest and compensation for debt recovery costs.
3) Don’t bury your head in the sand - start chasing unpaid bills as soon as possible and don’t offer further credit to the customer if your efforts to secure payments for goods or services supplied aren’t met.
4) Build strong customer relationships – make sure you communicate with customers regularly and let them know when you’re sending out invoices. If necessary, agree to be flexible and allow payment by regular instalments. The stronger your relationship, the harder it is for them to ignore you.
5) It may be that you ask a professional third-party financial expert to act on your behalf so that you can focus on your passion. Visit Solna for more information.