There are many reasons for late payments to a business, including cash flow problems or insolvencies of the business or customer that owes you money. However, late payments can in turn threaten your business – it’s estimated that more than 20% of business insolvencies are brought about by late payments.
Customers can pay late because they in turn are waiting for payment, because they have received an unexpectedly large payment demand from HMRC, because business is down or because they are over-trading and have run out of working capital.
This situation needs robust management or it can escalate and become critical. Late payments can cause your business to grind to a halt as it runs out of working capital itself. The best route is to avoid the problems by taking specialist advice, but even if you are already suffering from late payments, there is a great deal that can be done.
How to Avoid Problems with Late Payments A business recovery specialist can help prevent late payment problems arising in the first place, so it’s always worth talking to one, even if you don’t have any issues at present. Regard it as a form of risk management and revenue protection for your business. The recovery adviser can look at your invoicing system and the contracts you’re using and advise on making them watertight and robust.
They’ll also be able to give an opinion on the legality and quality of the terms and conditions you’re using – important in the event that you need to enter a debt recovery process
It is possible to insure against late payments. Debt insurance isn’t for every company, but the recovery adviser will be able to tell you whether it would be right for your business and help you to set it up.
How to Recognise Problems Early
One way to be alert for early signs of late payment is to risk-assess the customers you are currently trading with. If your business has hundreds or even thousands of smaller accounts, the risk is spread much more evenly. You should be able to run a report from your accounting system that will allow you to identify average payment times and how far they diverge from your trading terms for payment. You can then decide whether you want to continue to provide goods or services to the slowest payers.
The risk is much higher where a company has a small number of very large customers who could bring the company down through late payments and insolvencies. In this case, a business recovery professional will help you to set up systems that will protect your business. These will include credit-checking new customers and ensuring that their businesses, or they themselves, are solvent.
Invoice Factoring and Discounting
You may decide to look at alternative ways to get paid. Invoice factors will guarantee payment to you within a set time, and they take on responsibility for collecting the debt from the customer – collecting their fee on the way. There are quite a few things to consider before you go down this route, so talk to a business recovery adviser first.
Invoice discounting is different: the discounter will pay you a percentage of the invoice, but you remain responsible for collecting the debt from your customer. Discounting can help with cash flow problems, but your adviser will know whether it’s the best route for your business.
So if you don’t currently have problems with late payment, act now to prevent them occurring. If you’re experiencing cash flow difficulties now, talk to a business recovery specialist as soon as possible. They really can help.