The latest research by the Federation of Small Businesses shows that UK SMEs are owed £14.9 billion in late payments.
An FSB survey of 400 SMEs showed that, on average, respondents were owed £11,000.
The July 2018 survey followed an FSB report in June 2018 on supply chains. The report highlighted the impact of the collapse of construction firm Carillion on small businesses, many of whom remain unpaid. Read more on the survey here.
Late payments and unpaid debts have a huge impact on business cash flow – the main cause of small business failure.
There are 5 key ways a poor cash flow is holding you back:
1.It’s stopping you paying your suppliers on time
A bad cash flow is like a downward spiral. Your debtors don’t pay you on time, then you find yourself unable to pay your suppliers in a timely fashion. That means they can’t settle their bills and it goes on and on, like a ripple from a stone thrown into a pond.
Eventually, your suppliers will tire of this and go elsewhere, and you may have to pay more for the things you need.
2. It means you’re chasing invoices all the time – and not focusing on growth and strategy
How many hours a week do you spend on the phone to people who have outstanding, overdue invoices with you?
Just think what you could do if you had that time back and could spend it elsewhere in the business.
3. You don’t have the cash to invest in new people or machinery
If you want to expand, you’ll either need new equipment or more people to help you. They both cost money. Having a poor cash flow holds you back. You don’t feel that you can expand at the rate you’d like.
4. You don’t have a fund for unexpected costs
What would happen if your business had to close for the day because of bad weather, or if a few of your key staff were down with an illness?
Having a fund to keep going through these unexpected times is vital. A poor cash flow is constantly depleting your funds.
5. You can’t pay your bills on time
If that bill is your tax, for example, that could have serious consequences for your business with HMRC. If your bill is your wages bill, you will end up losing good people because of it.
So, what can you do to improve cash flow?
- Issue your invoices in a timely fashion and cut the terms of payment to 14 days. Then, ensure each invoice is chased on the day it becomes overdue.
- Issue contracts which have a clause penalising late payment.
- Outsource your credit control and debt collection to a company accredited by the Chartered Institute of Credit Management and Information Commissioner’s Office – just like Inter Alia Credit Management and Collections. They will help you ensure your cash flow is not damaged by late payers.