Late payments are a tough problem for small firms to deal with - small companies were owed £586bn as of October 2016, according to Lloyds Bank. Yet many companies won’t chase bad debts because they fear it will have a negative impact on customer relationships. A recent YouGov poll found the majority of small businesses don’t chase unpaid invoices until at least two weeks after they’re due, with 4% waiting more than two months.
There are practical steps you can take to stay in control:
- Ensure your payment terms are clear - ambiguous payment terms are likely to lead to delays
- Emphasise, politely but firmly, legal requirements to meet terms. According to the Federation of Small Businesses (FSB) only 20% of members believe that the voluntary Prompt Payment Code, (30-day standard, with a 60-day maximum limit) is sufficient.
Large companies are now required to publish payment practices biannually, disclosing the average time they take to pay. These new reporting requirements may yet make a difference. As could the appointment of a Small Business Commissioner to investigate late payment claims and offer mediation services when neither side wants to go to court. The key is to emphasise the buyers’ responsibilities and chase payments.
To keep track of payments, you can also use FreeAgent, software that helps you manage your business accounts, create and send invoices, track time, log expenses and forecast your business tax bills. The service is currently free to NatWest customers, and to qualify for this access you need to agree to share your FreeAgent information with NatWest. You can read more and give your permission on the FreeAgent sign up page.