– How You Can Make Sure they Don’t Affect Your Cash Flow
Late payments are the scourge of small businesses and SME’s. If you are a business owner yourself take a look now at your accounting software and see how much is owed to you today? Now if all of that money were available in your bank account how better would you feel about the future as we head into 2020? If you are a new business you are often keen to create a good relationship with clients, so you may let late payments slide – but this process will obviously affect your bottom line.
Most of our clients, of course, are ‘good payers’. Some pay on receipt of the invoices. Some will pay within the 14/30 day term as regular as clockwork. But some of course, for various reasons, will always pay at the last possible moment or worse – how many times have you received an invoice enquiry at the 30 day limit meaning a further delay?
According to the FSB 37% of their members have run into cash flow difficulties, 30% have been forced to use an overdraft and 20% cite a slowdown in profit growth due to late payments. Late payment of invoices is so common amongst SMEs, there are laws in place to protect them. There are of course, actions that you can take to claim payments and discourage it from happening again.
It is always good to set an agreed payment date, ideally signed in contract by both parties. For most companies this will be 30 days but this isn’t set in stone – you are perfectly entitled to set it to 14, 7 or even 2 days in advance if you so wish. That said, the client isn’t obliged to pay you until 60 days. As the FSB explains: ‘Under UK law, payments for goods and services provided to the public sector must be made within 30 days, and all payments for goods and services provided to the commercial sector must be made within 60 days.“ The payment is considered to be late 30 days after either the customer receives the invoice; or 30 days after the company has delivered the goods or provided the service.
If the payment is late the first thing you should do is send another invoice as a prompt or reminder to the client that they are overdue. In most cases this is enough to resolve the issue. Please bear in mind that you are legally entitled to charge statutory interest of 8% after the 30-day period has elapsed. Mentioning this in your second invoice is normally enough to ensure resolution. You are also entitled to charge a one-off fee for the cost of recovering the late payment.
If the client still refuses to pay the other options available to you are legal starting with a debt recovery claim. Under UK law anyone who is owed money can make a statutory demand for the amount owing. Further on you can issue a ‘winding up order’ or even a ‘petition for bankruptcy – although it’s always important to take third-party advice should events get that far.
As specialists in small and medium sized enterprises, we at SME funding UK believe that it is crucially important that business owners understand where they stand in relation to late payments. We would also recommend a process known as Invoice Factoring or ‘invoice finance’. This provides working capital and releases cash tied up in unpaid invoices – typically up to 90% of the invoice value (including VAT) – on the day the invoice is raised. Thus, it provides a cash injection from day one, and there is no waiting for the customer to pay when they see fit. We work with over 200 funders throughout the UK and have a great deal of experience working in this sector. Our funders can also provide optional credit control to chase slow paying customers.
While invoice factoring is not a panacea for all businesses it can be extremely beneficial to many. Please contact us directly if you’d like to discuss this or any other funding issues that might be affecting your business. Please do not hesitate to get in touch.
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