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Five tips to stop late payments and get paid faster

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Late payment means reduced profitability, knock-on late payments to suppliers and reduced business growth. Thousands of small firms go bust each year purely because the cash flow dries up.

Out of 8,000 Federation of Small Business (FSB) members surveyed in 2014 who provided goods and services to larger private sector businesses, more than half had experienced late payments in the preceding 12 months. Sage Pay conducted its own research, showing that two-thirds of UK businesses had experienced payments stretching more than 90 days, with invoices worth £55 billion remaining unpaid or outstanding.

Through the Small Business, Enterprise and Employment Bill, currently before Parliament, the government is introducing a requirement on the UK’s large and listed companies to report on their payment practice and performance. This will provide more transparency through a tough new reporting requirement, and will help take significant steps to addressing the current imbalance in economic power between small and large businesses.

Until then, here are some things SMEs can do to ensure faster payments:

Sign up to Creditsafe

Creditsafe collects information on how quickly companies pay their invoices. Creditsafe’s customers share information and insights about payment times, highlighting poor payers and promoting best practice. There are more than one million companies on the database, providing a unique window into corporate financial behaviour. Armed with the data that Creditsafe can provide, SMEs can take better-informed decisions on whether to accept work or commissions from certain companies.

Chase early

Be proactive and chase your suppliers for payment. Make it clear that you’d prefer to be paid electronically by digital transfer or Direct Debit, rather than by cheque. Also, if you’re waiting on a particularly large payment, don’t be afraid to make a courtesy call or write an email to the supplier to check they’ve received your invoice and that there are no queries about it.

Claim interest

You have a statutory right to claim interest on late payments at 8% over the Bank of England base rate. Additionally, you can claim compensation for debt recovery costs. Letting your customers know this as early as possible may encourage payment. 

 

Be flexible

Minimise the risk of delayed payments by providing flexibility around credit terms. For example, set up a facility for payment by credit card and think about offering discounts, such as 1% for early payments. Remember to balance the extent of any discount with the benefits of having an improved cash flow.

Consider 'invoice discounting'

Invoice finance solutions can be ideal for small businesses in need of an immediate cash flow injection. ‘Invoice discounting’ is essentially a cash advance against the value of your invoices. So when you raise an invoice you’ll receive 85% of its value from a financier within 24 hours. You’ll retain full control over credit management. The financier simply gives you cash up front and you pay them back, plus a small admin fee, when you receive payment. Find out more about ‘invoice discounting’

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