For many small and medium businesses, chasing payments is one of the greatest barriers to productivity and growth, with 17% of all payments in the UK made late and 9% eventually written-off as bad debt. For many of these businesses, these late payments are more than just a minor inconvenience. They are often the difference between staying afloat or completely going out of business.
These businesses also end up wasting hours, days and weeks of unproductive time chasing payments owed to them. This is a particularly difficult pill to swallow in an era where technology enables greater business agility, helping business admin and processes to be faster, more reliable and accurate. Paying people late shouldn’t be the accepted norm.
The UK currently has the world’s highest proportion of invoices that are paid late. 40% of the small & medium businesses asked in a recent survey said that they saw a direct, negative impact to their business from late payments – ranging from reducing future investments, to cutting staff pay, to being unable to pay bonuses. From a top-level perspective, this is not an issue that needs huge amounts of time or investment to solve – but rather a simple change in culture amongst our businesses.
Addressing the fear of straining relationships
One very uncomfortable reality of the late payments situation is that many small and medium businesses don’t feel they have the right to chase these owed payments. For many, the fear of straining client relationships or losing clients entirely is a major reason why they don’t even follow up on outstanding payments. As understandable as this is, it is still not acceptable.
There needs to be a culture shift. First, there needs to be a shift from the current culture where late payments to small businesses is considered to be reasonable or even expected, to one where it is entirely unacceptable. This culture shift will not only make SMEs more efficient, it will also enable them to increase investments and allow them to remunerate their employees better. There also needs to be a shift in mentality from SME owners to embolden them to confidently follow up on outstanding payments. Otherwise, this cultural stigma will continue to have a devastating domino effect on profitability and productivity levels – sending shockwaves throughout this network that our country’s GDP relies on.
SMEs underpin the economy and should be at the heart of our policy focus and investments. Otherwise, we risk missing out on a great opportunity to grow and strengthen the economy. Prioritising timely payments will also allow business owners to focus their time and energy into providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.
However, this change will not happen until SMEs get the respect they deserve and some parity is restored to the way payments for small, medium and large organisations are treated. We also need to lose the cultural stigma attached to chasing payments to put an end to the effect it is having on the economy. For example, as a result of late payments to SMEs, their own suppliers are not paid and the cycle continues from there.
Automate the process to improve efficiency
Another important step could be to harness the technology available to encourage automated chasing of invoices – a simple yet practical way to taking the burden off the shoulders of these small businesses. When making a payment is easy, business don’t have to ask twice. Automatic and digital payment methods, such as direct debit and e-invoicing, can make payments as simple as one click for your customers and virtually eliminate the top obstacles to getting paid on time.
Digital payments that are automatically reconciled in your bank account can also give SMEs more visibility and control of their cash flow. Since those types of payments are more reliable, SMEs can better forecast what funds you’ll have available throughout the year, giving you the agility to adjust as needed.
In 2018, it is totally unacceptable for businesses to be going under because of late payments. We need to make it a priority to remove this habit from today’s business world, as well as every other obstacle to the growth and prosperity of these businesses that play such an important role in the strength of our economy.