Late payments - a constant thorn in the side of UK SMEs

If there is one challenge that almost all of our customers site as causing them the most stress before they come to us, it is late payments.

There has been a great deal of focus on late payments in the media recently, cited as a major contributor to holding back economic recovery. Research carried out across the industry reveals that large companies in the UK are owed £6.7 billion in unpaid invoices. Suddenly that doesn’t seem like much, however, when compared with the debt of UK SMEs who are owed nearly six times as much at £39.4 billion*.

Many of our customers have chosen factoring as a solution to this problem, where our Credit Team chases any payments. This particularly suits business owners who are not comfortable comfortable, or don't feel they get results, collecting payment themselves. For those who are comfortable with the payment collection process we recommend invoice discounting.

Whether you use invoice finance or not, these 5 top tips that were put together by our in-house experts – the people who are closest to our customers – should help you to overcome late payments and keep your business moving:

1. Agree scope of work
Clearly state your costs and payment terms on the contract and ensure your client agrees before starting work
Making sure all parties are clear and in agreement before any work goes ahead will make it far easier to chase your customer once payment is due. Proof of their agreement to your terms and conditions will make your case much stronger if they cause delays.

2. Multiple forms of payment
Be open to accepting multiple forms of payment
Not accepting certain payment methods could give your customers reason to delay paying you what you are owed. Being open to multiple forms of reimbursement – ideally including credit cards – leaves your customers no excuses! Take advantage of the fact that everyone with an Internet connection has access to free cloud systems, such as PayPal. For more information, download our free guide on how cloud computing can support your business.

3. Upfront payment
Get an upfront deposit or set up a payment scheme
This involves taking a proportion of the cost before work commences and is an effective, yet reasonable way to set boundaries for your customers. The reduced balance once the work is complete may also have a positive impact on their ability to pay.

4. Terms
Stick to your payment terms
If your clients do not pay within the time limit then it is important that you follow through with your conditions. Make sure your invoices clearly state what will happen when payment is delayed, whether it means charging interest, reporting them to the relevant parties or taking legal action.

5. Prompt Payment Code (PPC)
Sign up to the Prompt Payment Code (PPC)
The Prompt Payment Code was set up by the Department for Business Innovation and Skills and encourages best practice between organisations and their suppliers. The code enables businesses to build stronger relationships with their customers and to be confident that they will be paid. Independent analysis by Experian suggests that current signatories to the Code represent over 60% of total UK supply chain value, so the Code is making a difference**.


*Research by BACS, July 2014 http://www.bacs.co.uk/Bacs/DocumentLibrary/UK_companies_face_a_late_payment_burden_of_%C2%A346.1_billion.pdf
**Matthew Hancock MP, Minister of State for Skills and Enterprise http://www.promptpaymentcode.org.uk/