Late payment is one of the biggest causes of business death, with time spent chasing debts killing business productivity. Unbelievably, small businesses lose a staggering 14 days a year chasing late payment - time which should be spent winning new business, building customer relationships and focussing on company growth.
Entrepreneurs must stay on top of their cashflow to ensure they are financially stable and can continue to run their business. However, with the fear of bankruptcy when late payments arise, many business leaders spend a significant amount of their own time chasing overdue invoices.
Hours which should be spent adding value to the company are suddenly wasted elsewhere as a result of late payers. With 246,000 business deaths in 2014, it is no surprise entrepreneurs are taking matters of late payment into their own hands.
But what can be done to stop late payment killing business productivity and stifling growth?
Yet taking a case to court is far from risk-free with legal costs quickly surpassing the amount owed by the late payer. There is no guarantee of a successful outcome and despite the business owners' best efforts, they can find themselves quickly regretting court involvement altogether when the outcome proves to be less than cost-effective.
Another option is to outsource debt collection, which businesses spent £1.1bn on in 2012. With 68% of businesses having to wait 60 days or more for payment, this figure will most likely increase, despite the negative repercussions debt collection has on future relationships.
It is vital action is taken to stop the late payment cycle altogether. Small businesses must stand up in the fight against overdue invoices and be supported if a related issue escalates beyond their control.
Small and medium sized businesses must remember they are just as entitled to be paid on time as much as larger companies. They should make the consequences of late payment clear early. If warnings are in place, ideally recorded on documents ahead of the first payment, late payers cannot argue they were ignorant of the repercussions.
If businesses have a support system in place from the outset, they are more likely to deter future issues involving overdue invoices. When genuine repercussions of late payment are clearly outlined - verbally and contractually - businesses can feel satisfied they are being as proactive as possible against late payment.
Cautioning other businesses is not a threatening action, but simply a preventative tool which helps both parties remain aware of their contractual obligations. If a late payment does arise, sending a friendly reminder can be all the action needed to obtain the owed amount.
But if this is repeatedly ignored, further action must be taken, particularly when a small business is suffering as a result. It is imperative businesses outline the absolute cut-off date for payment from the start. The time period between late and non-payments is often ambiguous with businesses treating deadlines with different attitudes depending on the relationship with their suppliers. But acting leniently to maintain a relationship can backfire when the debt is continuously ignored.
A strictly enforced deadline ensures clarity of the payment for all parties involved. Reputation is paramount in the business world. If a business is aware its' payment negligence could result in its debt details being exposed - and its reputation being tarnished - they are more likely to pay on time.
Small to medium sized businesses should have a support system in place which arms them with genuinely powerful repercussions for late payment. Businesses are then empowered with the knowledge they can react decisively and effectively through the system if payment issues do arise. Entrepreneurs are then able to spend their time wisely - concentrating purely on business growth instead of chasing late payers.
How do you tackle late payments? Make sure you sign up or log in to comment!
Entrepreneurs must stay on top of their cashflow to ensure they are financially stable and can continue to run their business. However, with the fear of bankruptcy when late payments arise, many business leaders spend a significant amount of their own time chasing overdue invoices.
Hours which should be spent adding value to the company are suddenly wasted elsewhere as a result of late payers. With 246,000 business deaths in 2014, it is no surprise entrepreneurs are taking matters of late payment into their own hands.
But what can be done to stop late payment killing business productivity and stifling growth?
Fighting back
Small businesses are increasingly resorting to court involvement to fight back, with the number of county court judgments brought by small to medium sized businesses increasing by 23% from the first half of 2015 to the second.Yet taking a case to court is far from risk-free with legal costs quickly surpassing the amount owed by the late payer. There is no guarantee of a successful outcome and despite the business owners' best efforts, they can find themselves quickly regretting court involvement altogether when the outcome proves to be less than cost-effective.
Another option is to outsource debt collection, which businesses spent £1.1bn on in 2012. With 68% of businesses having to wait 60 days or more for payment, this figure will most likely increase, despite the negative repercussions debt collection has on future relationships.
It is vital action is taken to stop the late payment cycle altogether. Small businesses must stand up in the fight against overdue invoices and be supported if a related issue escalates beyond their control.
What can be done?
Individual late payments initially seen as small and significant can quickly become a much bigger problem as more suppliers fail to pay on time. Small businesses, in particular, suffer once a payment is neglected, with businesses spending up to £677.00 a month on their overheads chasing overdue invoices.Small and medium sized businesses must remember they are just as entitled to be paid on time as much as larger companies. They should make the consequences of late payment clear early. If warnings are in place, ideally recorded on documents ahead of the first payment, late payers cannot argue they were ignorant of the repercussions.
If businesses have a support system in place from the outset, they are more likely to deter future issues involving overdue invoices. When genuine repercussions of late payment are clearly outlined - verbally and contractually - businesses can feel satisfied they are being as proactive as possible against late payment.
Cautioning other businesses is not a threatening action, but simply a preventative tool which helps both parties remain aware of their contractual obligations. If a late payment does arise, sending a friendly reminder can be all the action needed to obtain the owed amount.
But if this is repeatedly ignored, further action must be taken, particularly when a small business is suffering as a result. It is imperative businesses outline the absolute cut-off date for payment from the start. The time period between late and non-payments is often ambiguous with businesses treating deadlines with different attitudes depending on the relationship with their suppliers. But acting leniently to maintain a relationship can backfire when the debt is continuously ignored.
A strictly enforced deadline ensures clarity of the payment for all parties involved. Reputation is paramount in the business world. If a business is aware its' payment negligence could result in its debt details being exposed - and its reputation being tarnished - they are more likely to pay on time.
Small to medium sized businesses should have a support system in place which arms them with genuinely powerful repercussions for late payment. Businesses are then empowered with the knowledge they can react decisively and effectively through the system if payment issues do arise. Entrepreneurs are then able to spend their time wisely - concentrating purely on business growth instead of chasing late payers.
How do you tackle late payments? Make sure you sign up or log in to comment!
