Late payment is a problem that currently affects more than 85% of SMEs in the UK. It’s not only a nuisance for companies not getting paid on time it actually can put them out of business faster than they can imagine. Problems with a tight cash flow due to numerous late payers put 124,100 SMEs on the brink of insolvency in 2011. The problem even worsens as business behemoths such as 2 Sisters or Tesco use their market power to dictate outrageous payment terms and were even caught of paying their suppliers late. Satago found that Tesco pays its bills 79 days after the due date despite its above average payment terms.
While suppliers and delinquent payers are to be blamed in the first place, businesses are required to adapt to the times and need to get on top of their debtors. Proactiveness is key to get paid on time in our day and age. Waiting for chasing payments until an invoice becomes overdue is clearly the wrong approach. Following up by phone once an invoice was issued and keeping a close business relationship with your clients is essential to get paid. Additionally, a gentle reminder that an invoice reaches its payment deadline can be highly effective, especially if payment terms are as long as 30 or 60 days. There are a variety of tools available to automate email reminders and invoice statements. They can make your more efficient by allowing you to spend your time to interact with your clients and focus on building your business. However, it is crucial to customise the templates for those reminders and statements to make them appear to come from you directly rather than a system. Some accounting packages such as Kashflow and Freeagent do have some basic integrated reminder functions. At Wilds we are using the accounts receivable platform Satago to automate our invoice chasing. It integrates smoothly with most cloud and desktop accounting software.
Although a proactive credit control approach is favourable, reality is that many freelancers and small business owners neither have the resources nor the time to chase invoices actively. While an automated reminder and invoice statement process can help you to get some of your bills paid there will always be a small percentage of clients that need more than a slight nudge to receive your payment. What we found is that reminders are successful until around 30 days beyond term. If your debtors still remain unresponsive it might be worth charging late fees, which you are entitled to do according to the Late Payment of Commercial Debt Legislations. You can ask for a debt recovery fee of £40, £70 or £100 depending on the amount overdue. On top of that you are entitled to charge an annual interest rate of 8.5%. However, the success rate drops dramatically after around 45 days beyond term. For that reason we would recommend you to pick up the phone. We understand that not many people feel comfortable reaching out to their clients and ask them for payment. Services such as Satago have an escalation service in place where you can escalate collection issues on an account-by-account basis. You won’t need a complete outsourced credit control solution and consequently keep your cost for chasing debtors to a minimum.
Finally, the best way to deal with late payments is to prevent it from happening in the first place. Credit checks and scoring support you in deciding which businesses you want to do business with and which you better reject offering products or services. Additionally, for existing clients you can adjust your payment methods and terms. For example, if the credit score for a client is deteriorating, it might be worth considering shortening the payment terms or ask for direct debit or upfront payment to minimise the risk of late payment. Duedil or Experian are reputable sources for reliable credit data. Satago recently partnered up with Experian and introduced real time credit data within its platform to provide a holistic credit control approach for freelancers and small businesses.
In wake of the detrimental effect late payment has on the economy, the government made several proposals to tackle the problems last year. However, at the end of the day, the only way to minimise the risk of suffering from late payers is for freelancers an business owners to stay on top of their debtors through the implementation of technology or outsourced service solutions.