Nothing hurts a small business like late payments. New insights from Xero and PayPal have found that the average UK small business owes about £23,360 in late payments in February 2019, which is a 17 percent year-on-year increase. According to the research, the strain of cash flow problems caused by late payments had resulted in over a third of small business owners considering shutting down their companies. In the last 12 months, more than half of them have raided their personal savings, or been forced to borrow from friends and family to keep their business afloat. Given the circumstances, it is no wonder that two fifths of the surveyed business owners said late payments have seriously affected their mental health.
“In any given month, about 48 percent of invoices issued by small businesses are paid late and as a result, nearly a third of small business owners struggle to pay their suppliers on time”
Is a supplier constantly not paying you on time? While there are certain elements out of your control, there are some things you can do today to ensure you can get paid on time.
• Retain a respectful interaction with the non-payer. Any communication with them will reflect on your brand.
• Make the offender aware of the importance of being paid on time, so that your business can survive, enabling you to pay other stakeholders.
• Limit your follow up phone calls to once per week and make sure that you speak directly to the person authorising the payments. Also, do follow ups through a courteous email with the invoice attached and keep the stakeholder’s financial director in the loop.
• Take a breather before emailing; never send an email in anger. Do remember that written communications carry more legal weight on them than the verbal ones.
• Make it easier for them to pay you. By adding PayPal as a payment option to an invoice on Xero, payments can be made up to 21 days faster.
• Keep a paper trail through invoices and emails and keep a diary recording of any verbal interactions.
Still not been paid? Consider escalating the situation:
• Request immediate payment and remind the other side (looping in senior management) of the legal obligation to pay. You can also point out that the government is imposing fines on large companies that are not paying smaller ones.
• Know your rights. In the UK, you can claim interest and debt recovery costs if another business is late in paying for the goods or services received. If you agree on a payment date, it must be within 30 days for public authorities or 60 days for business transactions. If you have not agreed on a payment date, the law says that the payment is late 30 days after either the customer gets the invoice or you deliver goods, or provide the service. Keep in mind that other countries may have different rules regarding late payments.
• Only take legal action if you have received professional legal advice, considered the consequences of the action, and researched the costs. Taking legal action must be a last resort, but you must be prepared to defend your business even if you will not be able to work with that stakeholder again.
It is worth remembering that to a small business, a late payment is a non-payment. Besides, late payments have a national knock on effect.
In any given month, about 48 percent of invoices issued by small businesses are paid late and as a result, nearly a third of small business owners struggle to pay their suppliers on time. An average small business owes its suppliers about £8,811 in overdue bills, which is equivalent to a £50 billion of debt across the small business economy.
By taking a stand against late payments, you will be taking a stand not just for yourself, but also for every small business in the market.