Late payments threaten 440,000 small firms; here are five strategies you can use to protect your business cash flow.
Research from the Federation of Small Businesses (FSB) has revealed that more than 440,000 small firms could be forced out of business by a late payment ‘crisis’.
Almost a third of firms surveyed by the FSB said that the late payment of invoices had increased in the last three months, with 8% saying the problem threatened the viability of their business.
Late payments can be hugely damaging. Most businesses can’t wait to pay staff, suppliers, and other bills. Waiting for payments pushes many firms dangerously close to insolvency.
Here are five strategies you can use to deal with late payers.
Make your terms clear
First things first, make sure you agree on payment terms at the start of your working relationship. These should be highlighted verbally, and in a signed contract so everyone is on the same page.
If you’ve forgotten to agree on payment dates, you still have protection under UK law. Payments are considered late 30 days after an invoice has been issued or 30 days after a company has delivered goods or provided services.
Polish your invoicing process
Getting clear and accurate invoices sent over on time and as quickly as possible puts you in the best position to get paid on time.
Software like Xero and FreeAgent, offered by our accountancy partner CloudAccountant.co.uk, can help with this. Cloud-based software can automatically generate and send templated invoices whenever you please.
Chase payments vociferously
If a client doesn’t pay on time, the first thing you need to do is send them a reminder. The easiest way is to send another invoice when it becomes due. Again, cloud accounting software can help you do this automatically.
If a simple reminder doesn’t work, you can call the debtor and escalate your request to more senior people in the business.
Charge statutory interest
If 30 days have passed and there’s no sign of payment, you are legally allowed to charge statutory interest on the original invoiced amount.
You might have a stipulated interest rate in your contract, but statutory interest is the Bank of England base rate plus 8% for business to business transactions.
As well as statutory interest, you’re also allowed to charge a set sum for the cost of recovering a late payment. This is dependent on the value of the debt and can only be charged once.
Bringing out the big guns
If the client still doesn’t pay, it’s time to take matters to the next level. The first step is to use a statutory demand for the payment. You must serve this in person for a less than six-year-old debt.
Once a statutory demand is issued, they have 21 days to pay or agree on how they will pay.
If they still refuse to pay, then you can submit a winding-up petition to effectively close their business and seek to recover money from the company assets.
For more information about late payments and protecting your business’s cash flow position, speak to a member of our team. Call: 0800 611 8888.