In the world of business, cash flow is king and, for small business owners, it is a lifeline that keeps their ventures afloat and enables growth.
However, in recent times, late payments have been an issue that has been casting a shadow over small businesses across the UK.
Below, we investigate this pressing concern and how it might impact your business finances.
The late payment predicament
Recent data has revealed that late payments to small businesses have reached a concerning three-year high.
On average, small businesses are now waiting for nearly 30 days to receive payments from their customers.
This represents an increase of half a day compared to the earlier part of the year.
September witnessed payments arriving a staggering 7.7 days after their due date.
The impact on small businesses
For small business owners, the repercussions of late payments are multifaceted.
They extend beyond mere financial inconvenience:
- Cash flow crunch: Late payments can lead to cash flow challenges, making it difficult for businesses to meet their immediate expenses, including supplier payments, salaries, and operational costs.
- Disrupted planning: Managing a business requires careful planning and budgeting. Late payments disrupt this planning, as businesses struggle to predict when funds will become available.
- Financial strain: In cases where customers delay payments, business owners may find themselves personally covering expenses or relying on personal credit, leading to financial stress and instability.
- Professional image: Constantly chasing payments can impact the professionalism of your business, as it reflects poorly on your ability to manage your finances effectively.
The Prompt Payment Code
The Prompt Payment Code (PPC) sets the standard for prompt payments from larger businesses to their small business suppliers.
According to the PPC, 95 per cent of invoices from small businesses with fewer than 50 employees should be paid within 30 days.
However, it’s important to note that adherence to the PPC is voluntary, which has led to concerns about its effectiveness.
While the Government has launched a review to address late payment issues, it’s crucial for small business owners to take proactive steps to mitigate the impact:
- Clear payment terms: Establish clear payment terms and policies with your customers to ensure they understand your expectations.
- Invoicing efficiency: Streamline your invoicing process to make it easier for customers to pay promptly.
- Diversify income streams: Consider diversifying your income sources to reduce reliance on a single customer or client.
- Communication: Open and regular communication with customers about payment expectations can help prevent delays.
Late payments represent a genuine challenge for small business owners and, as such, it is vital to remain vigilant and proactive in managing this issue to safeguard the financial health and sustainability of your business.
By adopting sound financial practices and advocating for timely payments, you can navigate this challenge effectively and ensure the continued success of your enterprise.