Starting a business is great. Sustaining it, is the hard part. And if you play your cards right, do your homework, surround yourself with the right people – you have a pretty good chance of long outlasting your competition. Sound idyllic? Yep.
But unfortunately, in a cave lives a nasty beast that threatens the survival of every single growing SME in the UK (and even further-afield). It’s a beast that controls and prescribes, demands and dominates – and unfortunately, for many in its path, it bares very little care about impact and effect. It’s the beast of Late Payments.
The UK’s late payment culture is one of the worst in the world, with late payments costing smaller businesses more than £2b every year. And it’s not just the SMEs that struggle, but in fact, businesses of all sizes. Late payments pushing businesses to rely on overdrafts, pay their own staff late and even fearing bankruptcy.
The reality is simple – it’s become an acceptable norm over the recent years. And while the Government unveils new policies to tackle this culture of Late Payments head on, there is a substantial amount of work that SMEs can do to sustain and protect themselves while a culture which has taken years to build, is re-focussed and addressed.
So, what can you do?
Refuse to Accept
As with anything that quickly becomes the norm, the scale of this late payment culture is such that businesses of all sizes are simply starting to accept late payment as a cost of doing business. But it shouldn’t be that way. There is no reason to accept late payments for services or products already provided. It may sound a little heraldic, but taking a first approach towards those where payments are due, is setting a standard of acceptance for future business relationships. Taking a firm line on basic operational understandings and protocol set the tone for future interaction – and will go a long way in what is deemed acceptable, or not.
Think about it this way. Would your employees tolerate you paying their salaries late? Probably not. So why should you?
Invest in software infrastructure that closely manages and monitors your cash-flow. Software which is able to proactively warn and advise you when payment due dates are coming up, giving you enough time to proactively work with your business network to ensure accurate and on time payments. Reducing any potential processing errors and issues are highlighted through automated processes – giving you a stronger potential to on-time payment, without unnecessary delays. Resolve any potential operational issues before they arise, and keep an eye on repeat offenders and areas of communication that can be improved, to ensure on-time payments.
Watch That Flow
Just as much as you are watching the incomings, be sure that you keep an eye on the outgoings. Don’t spend more than you save and make sure that your revenue streams all contribute to a bottom line that builds up reserves and preservation for lean years, late payments and areas of potential risk. Although the concept of “just enough” in the supply chain world may work, when it comes to cash flow – make sure that you keep a close eye on expenses and that value and productivity is at the core of every business function, and every business process.
Consider the Direct Debit
For many businesses, Direct Debit payment options are one of the most effective way to recoup payments from customers on time. Giving you a stronger element of control, it is an automated process that does the work for you. However, that works well in a recurring revenue setup. And although this may seem someone restrictive of flexibility, many businesses are seeing the Direct Debit option as a way to collect payments for Fixed subscription and membership payments, regular and variable payments based on usage, payments from customers with flexible terms and even, in some cases, one-off payments. But remember, what works for one, may not work for you. So consider your options, carefully.
Give yourself a game plan
Your business plan should also cater for the What-If scenarios. What if a customer doesn’t pay you on time? What if they do that consistently? What recourse do you have? Could you survive taking action if a complete non-payment arises? Would that cost you more than the outstanding invoice itself? (Cost in terms of legal or simply the possibility of losing a customer). Plan a worse-case scenario, and even build in a rainy-day fund that steps into action in extreme circumstances.
Stay with us, here. Before you scroll on by, consider this. “Each year, almost 60,000 businesses and more than 350,000 jobs are lost as a direct result of late payments, and in taxation alone the exchequer is denied more than £500m annually. There is a collective responsibility to ensure that businesses are not adding to this total“, writes Dafydd Llewellyn, managing director of UK small and medium business at Concur. Building relationship also involves working collaboratively on building the greater picture. Establishing trust with customers is critical to thriving – and if you merely treat a payment as just that, you have very little hope of influencing that. Get to know them, allow them to get to know you – and you’re looking at a very different outcome.
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