Scary late payment statistics haunting businesses this Halloween

17/10/2017

As Halloween approaches most people are being scared by ghosts and ghouls. But unfortunately for many business owners, they face something much more haunting – late payment.

Here are some late payment statistics that some might find terrifying – plus tips on how to prevent them from keeping you up at night.

72 days average wait for invoices to be paid

Businesses with an annual turnover of under £1 million wait on average 72 days for invoices to be paid, according to Siemens Financial Services.

In contrast, those with an annual turnover of between £1 million and £10 million wait on average 53-54 days.

This is placing huge pressure on their cash flow and capacity to expand order books.

What you can do:

If you find that your customers are regularly exceeding payment terms it could be traced back to inefficient processes.

Take a look at your credit control procedure and assess your performance to ensure that you’re doing all you can throughout the process to encourage prompt payment.

For example, do you send invoices out on time? Any delay you make in sending out your invoices could give your customers an excuse to stall payment.

And how often do you speak to your customer throughout the process? Putting in some courtesy calls to check the invoice has been received and when the customer intends to pay can encourage prompt payment.

Take a look at this example credit control timeline for some tips on how to improve your processes to get paid on time, every time.

£44.6bn owed to SMEs

According to the latest Zurich SME Risk Index, Britain’s small-and-medium sized enterprises are owed in total an estimated £44.6 billion in late payments. That’s a lot of money currently in the wrong hands.

The figures revealed that one in five (21%) are owed more than £25,000 and almost one in ten (9%) are owed more than £100,000

Looking at these numbers, it’s not surprising that late payments are causing SMEs to have cash flow problems.

What you can do:

When faced with late payment you have two important considerations: How will you collect the payment? And, more importantly, how will you protect your cash flow?

There are a number of ways you can limit the impact late payment has on your cash flow, including reducing spending or negotiating payment extensions with your own suppliers.

You can also increase your levels of funding to ensure that you always have enough working capital to cover your commitments and avoid becoming the one being chased for outstanding payments.

In these situations, invoice finance solutions can be extremely beneficial as they release cash from invoices within 24 hours of their issue – allowing you to bridge the cash flow gap between paying suppliers and getting paid.

1 in 4 insolvencies attributed to late payment

With late payment causing significant cash flow issues, it’s perhaps not surprising that unpaid invoices are pushing vulnerable businesses over the edge.

Trade body R3 found that late payment for goods or services was a primary or major cause in 23% of corporate insolvencies in 2016.

Worryingly, the impact of late payment and business failure is not limited to one business. It can have a serious knock-on effect throughout the supply chain.

And with interest rates expected to rise soon, there’s a risk that even more businesses could be pushed closer to insolvency in the coming months, making it important businesses know who they’re selling to.

What you can do:

First and foremost, do you regularly credit check your customers?

Determining their creditworthiness before offering credit terms can protect you from those who are unable to pay – particularly when receiving an order from a new customer.

And if you’re concerned about the financial health of your business, make sure that your cash flow forecasting, planning and budgeting is constantly being reviewed.

By not performing these key tasks to the best of your ability you are putting your business at an increased risk of cash flow shortages, so when late payment strikes you’re more likely to find yourself in a challenging situation.

Regularly updating your cash flow forecast with accurate information and realistic projections ensures you manage your cash flow effectively and have adequate time to put plans in place to cover unexpected cash flow gaps.

This blog post looks at where your cash flow forecasting is going wrong and what you can do to improve.

UK small business facing bill of more than £2bn chasing payments

According to Xero, small businesses in the UK are facing bills of more than £2 billion just to chase up customers who don’t pay on time.

A great deal of time and money is wasted in the process of chasing. Two in five (39%) SMEs spend up to four hours a week chasing late payers, while 12% employ someone specifically to pursue outstanding invoices.

With so many other business responsibilities to consider this can be a huge drain on resources that could be better spent elsewhere.

But, with cash flow at stake, we can see why so many businesses choose to dedicate time to chasing late payment even when other tasks may be higher priority.

What you can do:

Statistically, the older an invoice gets the harder it becomes to collect. This is why it’s vital that in any late payment situation you work quickly to get back what you’re owed. Any time you waste could further delay the payment and will increase the damage to your cash flow.

In these situations, it can often be beneficial to outsource all debts that reach a certain age as part of your ongoing credit control procedure. This will allow you to switch your focus to newer invoices whilst the credit management experts use their skills to concentrate on your aged debts.

Find out more about how commercial debt recovery solutions can help.

Three-quarters of businesses think late payment is here to stay

Perhaps the most frightening statistic is that 74% of businesses think that late payment is a fact of business life and will always happen.

The survey conducted by Basware and Mastercard also found that 57% admitted delaying payments to suppliers intentionally and 67% said they use payment terms strategically to help manage their own cash flow.

With attitudes like this so common it appears that the late payment culture is here for some time yet.

What you can do:

Whilst the government is attempting to tackle the issue through initiatives such as the appointment of Paul Uppal as the first ever Small Business Commissioner, the onus is very much still on businesses themselves to do all that they can in order to protect their cash flow from late payment.

There is a variety of tactics your business can employ to ensure that you’re doing everything possible to minimise late payment and the impact it has on your cash flow. This essential guide to credit control explores many of the key strategies that you can try.

The key thing to remember is that different customers may require slightly different approaches, so it’s important to regularly assess what’s working and what isn’t to ensure that your processes are as efficient and effective as possible.

If your business has been impacted by late payment, we could help. Contact our team on 0800 9774848 or collections@hiltonbaird.co.uk to see how we could work with you to ensure you get paid.

This article was originally posted in October 2016 and was updated in October 2017 to include updated statistics.