Overcoming late payment culture

Late payments can be a problem for freelancers, contractors and small businesses. According to the FSB (Federation for Small Businesses) small businesses in the UK are owed on average £6,142. This figure is primarily due to late payments by larger companies. Sadly there seems to be a culture in the UK of delaying payments and the impact this can have on individual contractors, freelancers and small businesses can be significant.

£6,000 may not sound like a huge sum but for freelancers or a small business start-up, it can be the difference between profitability and the death of a small business. A report published last year revealed that in 2014 50,000 businesses in the UK were closed due to non-payments or late payments.

The other issue which is often overlooked is the hidden cost of late payments. Late payments can result in additional administration and man hours spent chasing payments. Then there is the interest missed because the funds weren’t in the business’ account and in some cases the cost of an overdraft or borrowing which was only required to fill a gap in cash flow while waiting for late payments.

The reasons for late or non-payment may vary and in business, rightly or wrongly, there will always be some risk of non-payment. However, there are steps that can be taken to try and prevent late payments.

If late payments or non-payments
are a concern for you and your business then here are some approaches you can take to try and keep payments on track.

• Have clear payment terms and make sure your customers are aware of them at the beginning of any contract or order.
• Invoice for goods or services straightaway.
• Send gentle reminders when a payment is due.
• Credit check your customers, particularly where large sums are involved.
• Keep track of payments and chase them as soon as they are due.
• Consider direct debits, this will depend on the nature of your business but can be an effective way of improving payments.
• If you hate chasing payments and always put it off, consider outsourcing your credit control.

At Exchequer Accountancy we hope that the culture of making late payments will change but we know that this won’t happen overnight. We understand how difficult it can be for our clients to chase payments and keep on top of all their invoices so we do offer a credit control service which can be included within some of our packages or added as one of our bolt-on extras. If you think we can help with your credit control then please just give us a call to discuss.