Late payments – why they are so damaging to small businesses and how to deal with them

Last year over half of all invoices issued by small businesses were paid late – many exceeded over 12 months before they were finally fulfilled.

Late payments are a problem that hundreds of small businesses struggle with. Managing cash flow becomes increasingly difficult when income is destabilised by late payments.

How to tackle late payments as a small business

Issuing prompt and accurate invoices to your customers is the first step in ensuring they pay on time. You should also include the due date of the expected payment.

Moving your invoices to an online medium can really help to streamline the process of getting paid for the work you do.

In addition, automatic follow-up emails can be vital in chasing up clients. Using an online system to issue invoices also has the bonus of freeing up more of your time to focus on running the business itself.

A quick bit of research on your customers can also help you decide whether to do business with them.

If they have consistently reported late payments on their credit history, perhaps it is best to find another customer.

Building and maintaining good relationships with customers is also an important way to ensure that late payments are minimised.

Having a positive relationship with a customer means they will be more willing and more likely to pay you on time.

What to do if you still haven’t been paid

Make sure you have made the consequences of not paying clear to the customer before you consider further action.

This might come as a warning, from you, that a debt recovery company will be employed if you don’t receive your payment.

If you have sent repeated reminders to your customers that their payments are late it might be time to act.

If your customer has gone into liquidation, then recovering your payment can be challenging. However, if they are still operating then you may need to escalate the situation.

Cease doing business with the customer – this may spur them into paying as they realise the service you were providing is about to be taken away from them.

At this point, dealing with the issue yourself is both time consuming and stressful so consider employing the services of a debt recovery specialist.

Managing cash flow to mitigate against the impact of late payments

One of the key issues that late payments cause for small businesses is the instability and unpredictability of cash flow.

Early communication about cash flow instability with your accountant may help prevent the situation from becoming worse.

An accountant can recommend savings techniques to mitigate against sudden cash flow drops and thus prevent further financial worries.

They can also help to forecast future cash flow so you have a better appreciation of your cash cycle and can cover any shortfalls in future.

To learn more about how an accountant can help when cash flow becomes unstable, get in touch today.

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