Even though the economy is recovering with business and consumer confidence returning to pre-2008 levels, this has had little impact on the ability of businesses to collect on their outstanding invoices. In a recent survey, 23% of businesses have experienced longer payment days waiting for customers to clear down their accounts, compared with 3% who said it had improved. 29% said that more invoices are not being cleared by the due date with most 30 day invoices taking on average 81 days to clear, the worst in Europe.
The effect on businesses can be quite catastrophic with the average amount owed to a firm being £31,000. This makes a combine amount of 30 billion held up in outstanding payments, resulting in one third of all businesses having to find alternative sources of funds to fill the gap. With many businesses unwilling or unable to approach their bank, this constrains many from taking full advantage of the upturn.
On top of that it is estimated to take 130 hours a year to chase monies owed. Many small businesses feel they can’t negotiate fairer terms with large clients and are unable apply late payment fees in case this jeopardises the business relationship.
In mitigating such risks it is important to diversify your client base so as not to become reliant on only a few customers. It may be appropriate to ask for deposits to ease cashflow and gain a commitment from clients. For larger jobs an instalment plan against milestones also limits misunderstandings for future payments.
Only releasing goods and services once payment has been received also sharpens people’s minds to make sure you are paid on time. To assist businesses we have developed some business tools to help you plan around issues of late payment. One is a quarterly budget to see when money will be tight. The other is aged debtor report which analyse bad performing clients. It’s always good to remember that an invoice is a legal document that is an order for someone to pay you. It’s already considered an asset on your accounts. Be nice if other people treated it the same way.