According to new research from the Federation of Small Businesses (FSB), a lot of public sector suppliers are facing late payment issues putting their small firms at risk.
Over 89 per cent of suppliers have to deal with late payment issues even today. The government need to get a hold of this issue if they want to overcome the poor payment culture running in the UK economy.
It is very unfair and unacceptable to all these small firms, especially when most of them are already struggling with survival issues due to poor finances. The UK government needs to lead by example and make sure that the small sector suppliers are paid immediately on completion of their work.
It is the duty of the UK government to ensure that immediate payment is embedded throughout the supply chains. Improving public sector payments practices is a win-win situation for all.
Change is underway to tackle the late payment issues
The UK government is constantly taking efforts in tackling the late payment issues. Recently, they have put legislation in place that forces large organisations in the country to report twice a year on all their payment practices. This also includes the average time it takes them to pay invoices.
With transparency and public analysis, the UK government hopes that this system of reporting will encourage the large corporations to pay their small suppliers on time.
This is kind of a huge development for small and medium organisations as they will be provided with a more reliable payment system with more certainty over when they will have money coming into their business accounts. Allowing the ability to manage their cash flow effectively will give them the required financial confidence to thrive. Such effective developments would help them to be a consistent contributor to the success of the UK economy.
Although this legislation is now set up, only time will show the impact it has on one of the biggest issues small businesses are facing. This shows the UK government’s efforts in tackling the late payment issues. However, there is a much longer road yet to cover and small business owners need to be doing all they can to tackle this issue on their own as well.
Here are six suggestions for the start-up businesses to avoid and tackle late payment issues:
1: Consider a move to electronic invoicing
One way small businesses and start-ups could significantly improve their cash flow is by moving to electronic invoicing or immediate card payments. It not only saves your valuable time by automating the entire process but it is also easier for your clients to pay.
2: Apply for Invoice Finance
As we all know, the alternative finance industry has been contributing a lot in the substantial growth of the UK SMEs and in turn the UK economy. These finance firms also have a solution for dealing with the late payment issues that the country is facing.
Invoice finance is a funding solution made available by these alternative finance firms that helps SMEs borrow money against the amount they are due from their clients. This funding solution helps them improve their cash flow, pay employees and reinvest in their growth.
3: Push larger organisation customers harder for payments
What suppliers can do is, consider issuing penalties or adding interest for the outstanding payments from the large enterprises that are consistently paying late. Many small businesses avoid taking this step as they fear losing business with the large enterprise customers or perhaps they are simply aren’t aware that they have this right.
4: Enforce 30 day payment terms
For those unaware, this is a standard time period for payment terms. If your company has this term in place, you should start chasing your clients from day 31 to make the payments as soon as possible. The longer a job is completed without payment, the more difficult it will become to get paid.
5: Get on top of your finances
If the business owners have a complete overview of what is coming compared with what is going on will help their business anticipate things better. It gives them a clear idea of when payments are due and allows them to chase it at the right time.
There are various management tools available in the market that provides businesses with real time access to their finances. Having a complete fair idea of the health of your business finance allows you to make informed decisions very quickly.
6: Build the best possible relationship with your customers
The benefits of building a good relationship with your customer is beyond just gaining their trust. Although this sounds obvious, but if you are take time and put in some efforts to get to know your clients personally, they are less likely to cause any complications when it comes to making payments on time.
Tackle Late Payments: Your checklist
- Try automating processes by moving to electronic invoicing
- Opt for invoice financing and invoice factoring
- Add penalties or interest to encourage your clients to pay on time
- Adapt 30-day payment terms
- Have detailed insights of your business finances
· Get to know your customers personally