Late payment has long been one of the greatest challenges facing small businesses. Many profitable businesses experience unnecessary financial pressure simply because customers take longer than agreed to settle their invoices. When cash is tied up in unpaid debts, it becomes harder to pay suppliers, invest in growth or even meet tax liabilities on time.
The Government has recently outlined further plans aimed at improving payment practices and strengthening support for smaller businesses. While many of the proposals are still subject to legislation, they indicate a clear intention to encourage larger organisations to pay their suppliers more promptly and to provide greater protection for SMEs.
What does this mean in practice?
Although the reforms are welcome, businesses should not rely on legislative changes alone to solve cash flow problems. Good credit management remains essential and can often make a greater difference than changes in the law.
There are a number of practical steps every business should consider.
Review your payment terms
Ensure your terms and conditions are clearly stated on quotations, contracts and invoices. If you currently offer 60-day payment terms as standard, consider whether a shorter period would be appropriate.
Invoice promptly
Delays in raising invoices inevitably delay payment. Wherever possible, invoices should be issued immediately after goods are supplied or work is completed.
Follow up overdue accounts
Many businesses hesitate to chase overdue debts for fear of upsetting customers. However, a polite reminder shortly after the due date often results in prompt payment. Having a structured credit control procedure helps remove the emotion from the process.
Monitor debtor days
Review the average time customers take to pay each month. If debtor days are increasing, investigate the reasons before the problem becomes serious.
Know your largest risks
If a significant proportion of your income comes from one or two customers, a delay in payment could have a major impact on your business. Consider whether your customer base is sufficiently diversified.
Maintain accurate cash flow forecasts
Regular cash flow forecasting allows potential shortfalls to be identified early, giving more time to arrange finance or reduce expenditure if necessary.
How we can help
Cash flow problems rarely develop overnight. They usually arise from a combination of slow-paying customers, rising costs and inadequate financial monitoring. We can help you analyse your working capital, review your credit control procedures and identify practical ways to improve cash flow before problems become critical.
Good cash flow management remains one of the most effective ways of protecting the long-term success of any business. Whatever changes are introduced by the Government, businesses that actively manage their cash flow will continue to place themselves in the strongest financial position.