What you can do to protect your business from late payments
It's not uncommon to experience problems getting paid, such as late payments, excuses, or radio silence. According to FreeAgent's research, 43% of invoices sent by freelancers and small businesses in the last year were not paid on time. In order to deal with late-paying customers, we put together a few ideas.
Areas where late payments are most likely to occur
Invoice data from 150,000 UK small businesses was examined by FreeAgent between June 2022 and June 2023, and we are able to reveal the best and worst areas for businesses to get paid. Let's start the drumroll...
Among firms based in Harrow, 64% of invoices are paid late. The following three cities are right on its heels, each with 61% of invoices paid late: Guildford, Nottingham, and Liverpool. The good news is that small businesses can breathe easier in Ipswich, where just 5% of invoices were paid late.
Despite the disappointing numbers overall, the trend is positive. Since the company last conducted this study in 2020, the percentage of invoices paid late has dropped from 46% to 43%. It's still a long way to go, but businesses can see a glimmer of hope.
What are the reasons for late payments among small businesses?
In spite of the fact that one late payment might not seem like the end of the world at first, small businesses have to deal with late payments every couple of months on average. That has some serious knock-on effects!
Businesses plan to have a positive cash flow most of the year, so they receive more money than they spend. The late payment of bills can throw off these careful plans, resulting in negative cashflow and in extreme cases, not being able to pay bills. Even though chasing payment can remind forgetful customers, it can take valuable time away from running your business.
One of the biggest causes of small business failure is late payments. Most small businesses cannot absorb late payments into their accounts - they need to get paid promptly to stay afloat.
Solutions for late payments in small businesses
Several small business owners have urged the government to address the issue of late payments. According to the research, 41% of users would like better access to legal aid and services, 38% would like to see harsher penalty structures for late payments, and 34% would like to see the Prompt Payment Code become mandatory for all private sector contracts.
To reduce the likelihood of late payments, you can take some simple steps:
Find out how to charge interest or fees on overdue invoices
Clearly state the consequences of late payment in all your contracts
You don't have to spend time chasing late payments - it’s likely your software can do this for you
Adding a payment link to your invoice will make it easier for your customers to pay
Allow customers who have difficulty managing their cash flow to pay in installments
If a customer refuses payment or goes AWOL, consider taking legal action
Talk to Zyla Accountants about how you can overcome this issue.