Do your clients pay on time?
When clients forget or worse, neglect, to pay you on time it poses serious problems for your business finances and overall cashflow. Although new automated invoicing systems allow you to send out invoices and chaser emails, it can still be tricky to ensure that you are paid on time. There have been various efforts to deal with this issue. In this blog, we hope to show why it is such an important issue for businesses.
The UK government introduced new legislation in 2013 to improve the payment of invoices. In summary this provided a statutory penalty interest (8% above base rates) and target payment dates for clients (30 days public sector, 60 days private sector).
In an attempt to bring increased transparency to poor payment practices, the UK government introduced new reporting requirements from April 2017, for larger companies (broadly those with annual sales above £36m). Every 6 months, these companies now have to report average creditor payment statistics. This includes the percentage of payments paid after the agreed payment terms.
Has this improved matters?
Whilst it’s too early to see the impact of the new reporting requirements, legislation alone remains unlikely to solve the UK’s late payment problem. A 2017 survey by the Federation of Small Businesses (FSB) – which has campaigned long and hard for small businesses over this matter – concluded that for the SME market as a whole:
- £26Bn of debt is overdue
- 90% of public sector clients pay late
- 50,000 SMEs go out of business each year due to cashflow problems caused by late payments
Xero – one of the most popular cloud accounting systems with more than 250,000 UK users and access to over 7m UK invoices – reported this year that over half of all invoices are paid late. Interestingly, larger companies are worse at paying on time than smaller companies. There seems to also be a correlation between certain industries and late payments. The worst offending clients operating in Food Production (60 days on average), Construction (57 days) and Consumer Goods (53 days).
Fixing your cashflow problems
The result is a vicious circle where late payments seem to be the norm, rather than the exception. With so many businesses failing as a result of these issues, and with UK legislation unable to reverse the trend, it seems as if businesses are left with only one option: take matters into their own hands and address cashflow problems directly themselves.
The tricky thing is that, for many businesses, these can be difficult issues to solve. That’s why we’ll be looking at this topic in more detail in our next blog as late payments are clearly still a massive problem for UK businesses.
Don’t leave it till it’s too late – Get in touch
In the meantime, make sure to contact us if you need specific advice about how you should proceed.