Late payments have long been the bane of many small business’ lives, threatening survival and causing a ripple effect throughout supply chains. Thankfully, the Government has now announced that its stepping up its efforts to reduce the issue.

The Background

Late payments and the issues they bring have plagued small businesses for years. It’s bad enough having to carry another, often larger business while they arrange payment, but in many cases the worry over whether those payments will ever arrive is unsettling too. Many a business owner has been awake at 3am when prompt payment by customers would have allowed them to sleep well instead!

As part of a recent announcement of the new Prompt Payment and Cash Flow Review, the Government reported that last year small to medium-sized enterprises (SMEs) faced an average of £22,000 in late payments, draining the UK economy of £2.5bn annually.

Taking action…

The new measures outlined aim to ensure small businesses get their payments on time in future, with the first stage being the Prompt Payment and Cash Flow Review. This is likely to result in legislation to increase payment reporting, enhance transparency and streamline processes for disputed invoices.

As part of the process of reducing the issue around Late Payments, the Government also plans to increase the powers of the Small Business Commissioner, enabling them to probe and spotlight habitual late payment culprits. 

Small businesses will receive greater advice on negotiating payment terms that better suit them, and on how digital services can help them get paid quicker and manage cash flow.

For these changes to take effect though, the new legislation will need to be passed, so it’s not going to be a short term solution.

The Corporate Culprits

Large corporations have often been criticised for setting terms that are heavily skewed in their favour, which can cause problems throughout supply chains. Most recently online platforms like Etsy, Amazon, and Booking.com have faced criticism for withholding or delaying payments of large sums, often without warning or explanation. We’ve seen issues ourselves with clients where a large entity has withheld large sums without an accessible route of appeal.

SMEs often find themselves given no option but to accept terms of 60 or 90 days if they want to pursue new opportunities to work with the larger entities. Even then, there’s no guarantee payments will arrive as due. Taken across the economy as a whole, this is seen to prevent growth and slow job creation, and in turn, reduce confidence. 

A Waiting Game…

The Federation of Small Businesses (FSB) has suggested late payment issues have reached crisis levels in the UK Economy in recent years. 

Their latest research indicates that late payments are pushing approximately 50,000 businesses to close very year. Data from payment software invoice specialists Medius reveals 39% of finance professionals struggle with late payments.

Paul Ellis, UK’s head at Medius, notes that 2023 marked the highest number of insolvencies since record-keeping commenced, with a quarter of them attributed to late payments. Ellis has said ‘it is high time for corporations with bad payment practices to be held to account’. 

There can’t be many who’d disagree… 

Into the future…

While the Government’s new commitment to tackling late payments is a significant step forward, close communication between Governmental and business groups will be vital if the new measures are to be successful and start to reduce a problem that has existed for years. 

The use of technology and clear guidance to help businesses understand how they can reduce the problem as well as clear communication of terms by all parties, as mentioned in the announcement, may well improve matters.

The Payment and Cash Flow Review will be welcomed with open arms by struggling business owners, with many hoping it will eventually allow the Government and the Small Business Commissioner to take action against persistent offenders.

But what can you do NOW?

It’s great that there may well be help coming, but what can you do now to reduce the problem in your business?

1. Make sure your terms are clear. Be sure to include your terms clearly in your contracts, and be sure that your customers sign those terms. This sets your expectations and gives you a fall-back position if you need it later. Remember too you don’t have to have the same terms for all of your customers. You could have different terms for new customers, reducing your risk.
2. Flexible Payment Options. Consider offering early payment discounts or other incentives. Could you ask for a deposit before you start work, or use instalment payment plans for larger amounts, or jobs that are easily broken into stages?
3. Build relationships. Can you get closer to a key person in the accounts department, that may help if there is a problem? You need to know if there’s a problem with an invoice or a delayed payment sooner rather than later!
4. Regular Reviews. Periodically review contracts and terms with regular clients. As your business evolves, your terms and pricing might need adjustments.
5. Use Technology! 
6. Electronic invoicing is now easily accessible and can automate the billing process, send reminders and give you real time updates on outstanding payments.
7. Automate payment reminders and chasing. These can dramatically reduce the time required for manual chasing, making your process more reliable and more effective, and can leave the time available for chasing to be spent on the older or larger amounts. 
8. Online payment ‘gateways’ such as Stripe, Go Cardless, Credit cards bank transfers and digital wallets reduce the friction for payments. Make it as easy as possible for your customers to pay and you’ll find it easier to differentiate between those in the ‘can’t pay’ or ‘won’t pay’ brackets and address them accordingly.

If late payment is an issue for your business, and is causing you cash flow problems, please get in touch. There may well be steps you can take to improve things in the relatively short term. We’d be very happy to help you identify those and see if we can help you resolve them, and it often doesn’t need any involvement from us beyond the initial conversation. There are also related posts across this site, so do have a look through and shout if you need to!

You can find out more here: https://www.gov.uk/government/news/government-takes-action-to-back-small-businesses-and-tackle-late-payments