Better Late Than Never? Why Delayed Payments Can Never be Good for Business

Late payments, we’ve all been there; and that’s not to mention the chasing up, the waiting around, and the age-old frustration that comes with it. Yet for the majority of start-ups, late payments represent more than just a mere inconvenience. Software company Xero found that on average, a staggering 48% of invoices issued by small businesses were paid past their due date in 2018 – nearly half of the nation’s SME invoices (in their millions). Not only can this have major repercussions for the financial health of a business, but it can also trigger needless stress and anxiety for both owners and employees – as well as damaging all-important business relationships in the long run. We explore the reality behind Britain’s late payment offences, and what businesses can do to prevent them.

Software company Xero found that on average, a staggering 48% of invoices issued by small businesses were paid past their due date in 2018.

From cashflow woes to stifled growth

As many a business owner will concur, keeping on top of cashflow can prove a real everyday struggle. Throw delayed payments into the mix, and an SME’s incomings and outgoings become even harder to manage – spiralling out of control and having a severe impact on productivity. With 50,000 businesses failing each year due to cashflow problems, the belated actions of a client can result in serious setbacks or (worse still) a company’s doors closing altogether. Xero’s Small Business Insights report found that over a quarter of SMEs pay their suppliers late as a result, racking up a debt of over £50 billion per year across the small business community. While bigger corporations may find this easier to swallow, this is a ‘luxury’ the majority of SMEs simply can’t afford.

With a third of small business owners claiming they’d be more productive if it wasn’t for cashflow worries, it’s clear that consistent late payments can have consequences for future growth. Without access to the funds that are duly owed, SMEs will find it difficult to invest in the staff and technology needed to drive their business to the next level. In a world where invoices were always paid on time, 28% of business owners also agreed they would feel more empowered to make big decisions. Affecting the self-confidence of entrepreneurs, it would seem the instability caused by stifled cashflow has the ability to go beyond simply balancing the books.

Losing sleep over late payments

According to Theresa May’s Thriving at Work review, poor mental health in the workplace costs the economy up to £90 billion per year – of which start-ups play a big part. With late payments responsible not only for negative cashflow but a lack of growth, it’s easy to see why once-ambitious entrepreneurs would feel hard done by. Whether that’s being forced to borrow the funds required from family and friends (of which 52% have claimed), to the drastic impact this may have on relationships at work and at home, mental health issues caused by financial uncertainty alone have the power to abolish future growth plans for any business. As 43% of SME owners admit to losing sleep over capital, this mental health dilemma – causing 37% to relinquish their ventures entirely – is already having a detrimental effect on the UK economy. So, what can be done about it?

43% of SME owners admit to losing sleep over capital.

Power to the process

With the right support and processes in place, businesses have the power to take better control over the late payment crisis. As government backing increases to better incentivise those who do wish to pay for services on time, here are a few sure-fire ways a start-up can help themselves:

Trust in the tech – whether it’s automated ‘invoice chasing’ or making it easy for clients to settle up sooner, the adoption of specialised software can take the hassle out of late payment fallout (often preventing it from happening in the first place). If using online wallet PayPal for example, the ‘Pay Now’ feature allows developers to implement this ‘experience’ to encourage payees to finalise transactions sooner – minus the worry of funds being debited later down the line.

Payment on your terms – while it’s good to demonstrate a more flexible payment agreement (particularly in the early days of business), this will only benefit your working relationships for so long. Negotiate shorter payment terms with new and existing customers, and not only will you make your services more transparent – but you’re more likely to regain control of your cashflow as the chief mediator. This may seem like risky territory, but you’d be surprised at how receptive clients can be.

The politeness factor – we’re all guilty of being over-polite; when it comes to your business however, don’t be afraid to speak your mind. If the outstanding payment in question is out of character (or already pre-empted), a fair amount of leeway can be afforded. If late payments are a regular occurrence on the other hand, be pro-active in your professionalism and investigate the reasons why. With better communication in place, the ‘theme’ of late payments is more likely to subside.

For more information on cloud accounting software, please visit our Xero page or contact us to see how we can help streamline processes and keep your business buoyant.