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Stephen Lloyds

Even as the economy finally moves into a period of sustained growth, the late payments issue shows no sign of abating. According to the Asset Based Finance Association (ABFA), the smallest businesses are waiting longer than ever for their invoices to be paid, with the average delay being up to 72 days. A recent report showed that almost half of small business owners have experienced delayed client payments in the past 12 months, and that more enterprises than ever are facing deferrals.

Stephen Lloyds

Stephen Lloyds

This can put SMEs in a real predicament. Any enterprise needs sound cash flow to survive. Yet there is a natural reluctance to harass the customers that keep the orders coming in. Businesses should be assured, however, that it is far from a hopeless ‘catch 22’ situation, and that there are a series of positive steps that can be taken to overcome the problem. Here is how.

Start with the basics. Getting a significant order is always exciting, but it pays to check whether a new customer is credit worthy. Equally, in some cases preparing for the worst and getting insurance can provide a vital means of protection. It can be a big financial commitment, but the cost of investing in new resources and equipment to meet an unfulfilled order can be far more costly.

Once it is established that a partner is safe to do business with, set out the right payments terms.  Agreeing terms up front at the earliest opportunity, rather than on the hoof, sets out a clear marker.

This is also the stage where a business needs to signpost the consequences of late payments to its clients. Applying the EU’s Late Payment Directive enables a firm to claim interest on deferred payments; having the ‘all monies’ retention on orders means products can be retrieved quickly in the event of delayed invoices.

Now the payments process is fully in motion and all the right conditions are in place, what’s left is the need for clear and frequent communication between delivery and payment.  In advance of the payment date, checking in on clients can uncover issues before they hit you out of the blue. Ensuring confirmation of receipt for invoices is another way to keep things running smoothly, while eliminating the excuse of missing invoices.

Yet it’s a sad reality that you can meet all of these steps, but it will never rule out a late payer. Smooth accounting procedures can make all the difference. Getting the full picture of what is coming in and going out will inform the best course of action. How much damage has the suspended invoice caused? Will anything else in the pipeline provide cover, or do you need an alternative source of credit to meet operating costs and debts? Good accounting provides all of the answers.

Late payments can be debilitating for a business, causing considerable cash flow headaches. Our recent Business in Britain report found that deferred payments were the biggest cause of cash flow problems for UK enterprises. It is akin to your employer suspending your paycheque – much of your immediate and long term plans would have to be put on the shelf.

Arbitrary delays do not have to hold any enterprise back. Invoice finance provides one way for businesses to unlock dormant cash flow. There are many different variants, but it ultimately works by enabling an intermediary to buy your order book – giving you access to up to 90 per cent of the value of issued invoices within 24 hours. If you need the cash flow to seize a new opportunity, but can’t because you’re not getting the money you’re owed, this form of finance can enable you to realise the potential of your business – irrespective of late payers.

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