How can small businesses manage late payments?
With less than a month to go until the Autumn Budget, businesses and individuals are all bracing for the potential economic changes and challenges that may be in store.
One thing that the Chancellor is unlikely to be able to tackle in her Budget is the damage to cash flows that many SMEs face when subject to payment delays.
Instead, it is important that businesses understand the problem and find solutions that can ensure that delayed payments do not result in deeper financial troubles.
How can late payments be prevented?
Many of the problems surrounding late payments can be mitigated in the contractual stage of a business agreement.
Payment deadlines should be clearly specified before the work is conducted or the service is provided.
It should be apparent up front what will happen if the payment is delayed.
This most commonly manifests in the form of interest being owed on payments after a deadline, but this is not the only option.
Some businesses prefer to take a more positive approach by incentivising early payments rather than punishing late ones.
Offering a discount to those who pay their bills early can be a good way of actively encouraging efficient payment without risking the rapport you have worked to build.
The Association of Chartered Certified Accountants (ACCA) found that 35.6 per cent of UK SMEs reported problems with securing prompt payment, so it is worth reconsidering your business practices to find a way to manage the situation.
How can an accountant support late payment challenges?
While it might seem like a mild frustration when one or two payments are delayed, the long-term impact these can have on finances is rarely so easily ignored.
As with all challenges to cash flow, it is imperative to understand how this might impact the wider financial health of your business.
You can only afford to be so generous with late payments if your cash flow is healthy in other areas.
We can advise you on the best practices that can help your business absorb the costs of any unpreventable delays while also offering guidance on how to mitigate the problem overall.
In the current economic climate, businesses need to be doing all they can to manage money effectively in order to prepare for any challenges that may present themselves in the Autumn Budget.
It may be possible to explore other sources of revenue or investment to encourage healthier cash flow.
Ultimately, the best advice we can offer is to pay close attention to where late payment problems arise.
Clients and customers who regularly delay payments are likely not worth continuing to work with and it may be better for your business to part ways.
Your business deserves every opportunity to succeed and we work with you to make this a reality.
For help and support with tackling late payment problems, speak to our team today!
