At the broadest level, the concept of running and growing a business is simple: Make sure you have more money coming in than going out, and reinvest it. In the real world, however, things are a little more complex than that. While a business’s accounts might look great on paper, with a strong list of debtors, its cash flow often tells a very different story, as company’s large and small struggle to keep the cash flowing by getting those invoices paid on time.
Throughout the UK hundreds of thousands of small businesses struggle when it comes to getting the money owed to them in a timely manner. We recently conducted a survey of small and medium-sized enterprises (SMEs) across the UK to better understand the impact of late payment on their businesses. The findings were quite shocking:
- 84% of UK SMEs have experienced late payment
- Despite economic improvements, almost a fifth (19%) have reported a rise in incidence of late payment, while 46% have reported no change.
- 42% of respondents say late payment has slowed their growth. While 39% have had to delay payment to their suppliers as a result of late payment.
- 40% of businesses are owed more than £10,000 in late payments, with the average amount owed to businesses standing at £20,138.
- Background checks
- Master your receivables
- Hire a credit manager
Where an invoice is overdue, a good credit manager can actually help strengthen your client relationships by working with them to find creative solutions to resolve their payment issues. By working with them rather than hounding for payment, they pave the way for smoother future payment processes, and hopefully more orders.
If budgets are restricted, consider hiring a freelance credit manager.
- Have a ‘Plan B’
Most business owners have an agreed overdraft facility in place with their bank for such circumstances. However, with the banks cutting over £5 million worth of business overdrafts a day, having a back-up for your back-up is now a must.
Today, businesses have a host of alternative financing options to help keep the cash flowing. Some of the most popular options include spot factoring - where you sell your invoices, not necessarily all of them, at a marginal discount before they’ve matured; asset based finance - where company assets are leveraged to secure a funding rather than relying on an equity approach that most banks employ, and of course many others. Each option has strengths and weaknesses, so be sure that the option you choose is most suitable to the needs of your business.
By David Banfield, President of The Interface Financial Group