If you’ve ever experienced late payment from one or more of your customers, you’ll understand the impact it can have on your business. At best, it can be frustrating whilst you try to balance the books. At worst, it can spell the end of your business – and even lead to bankruptcy.
Last year, the Forum of Private Business estimated that more than one million SMEs have experienced late payment at some point. Late payment legislation stipulates that an invoice should be paid within 30 days yet, despite this, credit terms are regularly set at 60, 75 or even 90 days by many firms – and if you are a small business supplying to a national or international company, it can seem pretty much impossible to demand your own terms. And besides, deadlines frequently go unmet whatever terms are in place, leaving a devastating impact on a business juggling its own costs.
Knock-on effects of late payment on your business might include:
Staff being laid off if you can’t pay their wages.
Business premises being lost if the rent or mortgage goes unpaid. This could force you to downsize to smaller office or warehouse space, which in turn could undermine customers’ confidence in your firm.
Bills piling up as you struggle to pay heating, lighting and phone charges, as well as tax and VAT bills.
A poor credit rating if a lack of finance leaves you unable to pay your own suppliers’ invoices. Don’t rely on a glowing past history, either, as your credit rating can plummet surprisingly quickly following just one or two missed payments.
Luckily there are steps you can take to make sure your cash keeps flowing. Follow Simply Factoring Brokers’ dos and don’ts for coping with late payment, and you should avoid a damaging impact on your business:
- Set out your credit terms up-front and in writing
- Invoice soon after the service or goods are delivered, with small print explaining that you understand late payment legislation and will implement it if necessary
- Accumulate a financial buffer to see you through the occasional payment blip
- Consider invoice factoring. This takes away the worry of late payment altogether, because you receive the majority of your money from the factoring firm as soon as your invoice is issued
- Do nothing! If one of your clients is late paying, don’t sit back and hope for the best
- Continue to supply goods or deliver a service. This won’t encourage your customer to pay up… it will simply increase the debt risk
- Put off paying your own customers. This will simply get your business a reputation as one to avoid
- Allow the cycle to be repeated. If, having finally paid, a customer wants to do business with you again, make clear they can’t develop a late-paying habit
Maintaining regular cash flow whilst managing the day-to-day demands of your business can be tricky, but Simply Factoring Brokers can match your business with the right finance provider for your needs. To find out more, call Simply today on 0333 772 1558 and let us help take your money worries away!