What difference would a major cash injection and a big chunk of extra time make to you? On average small businesses in the UK are owed a staggering £12,000 in late payments and spend 336 hours every year chasing them down.
Here’s a closer look at those figures plus four ways to avoid late payments jeopardising your business.
£12,000 owed in late payments
What could a business do with that sum of money?
- A 15-person business could buy each member of the team a new iPhone 6S, with money to spare.
- You could cover the cost of unlimited travel around London for a full year, for at least four employees.
- Based on the CIPD’s latest Learning & Development Report, a 24-strong company could double its spend on training.
- Assuming a marketing spend of around 5% of total revenue, a company bringing in £240,000 annually could pay for all of its marketing and advertising.
- The fuel costs for 156 car journeys between London and Edinburgh
336 hours a year spent chasing late payments
That huge volume of time represents a full-time staff member’s working hours for over two months. What else could be done with those hours?
- A full day of team-building for a business with 40 employees.
- An eight-person company could give every team member an extra week of holiday.
- A seven-person organisation could let everyone leave an hour earlier on Fridays, for the whole year!
You can make changes right now to alleviate the pressure of late payments. Here’s how:
- Look for potential cash flow gaps
Try to guard against any future late payments by ensuring your payment terms and your suppliers’ terms match up. If you’ve given your customers 60 days to pay, and your suppliers demand 30 days, then you may be dipping into your capital reserves to cover costs.
- Lead by example
Business relationships are all about give and take, so make sure you treat your suppliers in the same way you’d like to be treated by your customers. Set an example by paying your suppliers on time, if not early.
- Make payment easy
Some businesses will be paid on the spot, particularly those that rely solely on consumer purchasing via cards or even cash, rather than business contracts. For those dealing with business invoices, consider adding a ‘Pay Now’ button to invoices, so payment is as easy as possible.
- If you can, make payment automatic
One way to avoid the issue of late payments entirely – on an ongoing basis – is to set up direct debits. Often this may not be possible, and it depends on the sector you work in and how your business is set up, but if you have any customers with recurring orders then direct debits can be a blessing.
Get more practical advice in our guide to managing cash flow.