Skip To The Main Content

The steps you need to take to prevent late payments

finance structure_detail

By Rachel Astall, head of global partnerships, SMB platforms, at GoCardless 

More than half of British business owners have had to use savings or emergency finance to keep their company afloat because customers have paid them late. This is according to our own recently conducted research, which also found that eight out of ten bosses admit they’ve been tardy settling their own bills because unpaid invoices have damaged their cash flow. 

Late payment has always been a problem for small and medium-sized businesses (SMBs), given many are particularly vulnerable to not being paid on time by larger companies. FSB’s own research estimates the average amount small firms are owed in late payments is £6,142, while if SMBs were paid promptly the UK economy would see a boost of £2.5 billion annually. 

Vitally, around 50,000 smaller enterprises would be prevented from closing down if they were only paid on time. Business owners themselves also suffer. Almost nine out of ten SMB owners confessed that they are more stressed and anxious because of uncertainty around payments. 

However, there are practical, low-cost and increasingly high-tech solutions to the age-old problem of getting paid quickly and reliably:

Review pricing and payment terms

When did you last look at your payment terms? How you communicate your prices as well as how you expect to get paid is of paramount importance. Make your pricing structure simple, clear and easy to understand. 

Give explicit guidance on how you want to be paid, whether it is via a Bacs transfer, standing order, credit card or Direct Debit. Have you considered asking for half the total owed upfront possibly in exchange for a discount? 

Importantly, make it absolutely transparent when you expect to receive payment, as well as the negative consequences of leaving a bill unpaid. Clarity of expression about your payment expectations will give customers few excuses not to pay you how and when they should. 

Automate credit control

Software today is inexpensive and widely available to automate payment and credit control processes, saving hours and days of time for SMB owners. 

Using a ‘pull’ payment mechanism, such as Direct Debit, means that cash owed is collected from a customer’s bank account automatically. Funds arrive reliably, planning ahead becomes easier and client relationships are often put under less strain when the need to chase payments is removed from the equation. 

Equally, automating credit control using apps such as Satago, Fluidly and Chaser will see reminders sent out a week before payments are due, while unpaid sums are chased by the technology without the need for human prompting or intervention.

Use online invoicing

Electronic invoices are easy to use for both the vendor of goods and services and the individual paying the bill. Often, a click-through function allows customers to settle the invoice in just one press of a button. Invoices are issued automatically, as are reminders if sums remain unpaid, while time and money are saved in sending paper demands through the post. Popular online accounting platforms include Xero, Sage, QuickBooks, KashFlow and Zoho.