Getting paid on time: Three tips to help businesses flourish
The widespread disruption caused by Covid-19 only underlined the importance of working efficiently to keep the wheels turning.
Some saw their costs go up due to new infection control measures and staff shortages, while many office-based firms unexpectedly benefited from reduced running costs and expenses bills because staff were working from home. Whatever sector you work in, months of uncertainty are likely to have meant sleepless nights over cash flow.
Late payments from customers, who may have been of experiencing cash flow problems their own or intentionally delaying payments, are extremely damaging for firms but are unfortunately all-too-common.
The Federation of Small Businesses (FSB) found that 62% of small businesses had seen an increase in late payments or had pay frozen completely due to the pandemic.[1] Some now find themselves in a precarious financial position and it’s certainly worrying to think that 17% of SMEs in the UK are at risk of going out of business in the next four years - with lengthening payment periods suggested to be a big factor in this.[2]
Experts believe that if every business is paid on time, it could unlock between £40bn and £60bn of additional revenue for small businesses.[3] Life-changing funds that could, without a doubt, secure the future of many SMEs.
Clever use of technology can hold the key towards unlocking healthy payment terms and better relationships with suppliers.
A recent report Striving to Thrive: The state of play for micro and small businesses highlights just how important it is for small businesses to digitise, revealing that 41% of SMEs might not have survived the pandemic without technical tools.[4] We are supporting the Government’s Help To Grow scheme[5], empowering the UK’s SMEs with access to transformative software.
If you’re struggling to get paid on time, here are three simple ways to encourage better practices, using technology and more.
Tip 1: Credit check first
Before committing to working with a supplier, always run a credit check to learn the true financial risk. Doing this will quickly reveal whether or not they have a bad payment history, have been subject to County Court Judgements (CCJs) or are struggling with debt. With this information, you can weigh up the risks and rewards and choose whether or not to work together.
It’s also good practice to credit check existing customers too, even if you have a long-term working relationship. Circumstances can change at any time, particularly during a period of economic uncertainty, so being aware of what’s going on behind the scenes helps to guide future decisions, and ensure there are no surprises.
To speed up the process, look for invoicing or accounting software with in-built credit control features as standard – this will run credit checks automatically, highlighting any cause for concern.
Tip 2: Take the time to build good relationships
Customers are more likely to approach you about any cash flow difficulties they’re facing early on if you maintain clear lines of communication and foster a good relationship with them.
If an extension or alteration to payment terms are needed, then it’s easier to come to a resolution that works for both parties. When using software to complete the manual processes in your business, such as reconciling invoices or sales order processes, your team will have more time to spend nurturing strong relationships, helping you to navigate any challenging situations better.
Tip 3: Embrace automation
There are lots of reasons why automation can help to maintain positive cash flow.
By automation, we mean using software systems that can help to minimise the amount of human, manual processes needed to complete a task. This speeds things up, reduces the risk of human error and can also lead to powerful insights, thanks to the increased data analysis happening in near real-time.
Automated invoice processing software can approve payment of invoices instantly, as long as they meet specified criteria, without input from the team.
They’re also issued promptly to reduce the risk of late payments and staff will be automatically alerted to anyone who might not meet their payment terms.
[1] Source: www.fsb.org.uk/campaign/late-payments.html
[2] Source: https://smallbusiness.co.uk/nearly-17-of-small-businesses-at-risk-of-insolvency-2557228/
[3] Source: https://goodbusinesspays.com/posts/faster-payment-unlock-60bn/
[4] Source: www.mastercard.co.uk/en-gb/vision/priceless-causes/empower/strive.html?cmp=2022.q4.gb.eur.gov.brand.purp.fi.strive.bg1234.otc.not.other..en.seven.cebr.research
