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How to Overcome the Problem of Late Payments

When your company is facing yet another cash flow crisis caused by late paying customers, it can be hard to believe there might be a solution.

But there are steps you can take to overcome the problems delinquent payments cause and to avoid them happening again.

Late payments are something that hundreds of thousands of SMEs experience. Of the 1.7 million SMEs in the UK, 640,000 say they have to wait beyond the agreed terms for payments, according to Bacs Payment Schemes.

Nearly 40% of them spend up to four hours a week chasing late payers and 12% employ someone specifically to pursue outstanding invoices.

Late payments can threaten SME’s ability to trade, and stifle appetite for growth and recruitment, says Ian Cole, Head of Invoice Finance at Siemens Financial Services. In worst cases, it can lead to insolvency. Mike Cherry, National Chairman at the Federation of Small Businesses, said if payments were made promptly, 50,000 business deaths could be avoided every year.

So too could the problems that late payments cause. Of those SMEs facing late payments, 16% struggle to pay their staff on time, while 28% of company directors reduce their own salaries to keep essential working capital inside their businesses. A quarter (25%) rely on bank overdrafts to make essential payments, and 15% find it difficult to pay business bills like energy, rates, and rent when they’re due.

Late payments take an emotional toll on business owners and CEO’s too.

Over a quarter (29%) of UK SME owners struggle with depression, anxiety, increased stress, and other serious mental health related issues caused by the worry of late payments, according to research commissioned by The Prompt Payment Directory (PPD).

The survey polled 1,000 UK small to mid-sized company owners who all suffer from poor cash flow due to late or outstanding invoice payments.

More than a third (34%) regularly lose sleep over poor cash flow caused by clients paying late and 7% even claim to have lost their hair because of the anxiety, the PPD revealed.

Nearly a quarter (21%) struggle to pay their mortgage or rent or have been forced to sell the family home. The consequence of these late payment pressures is also destroying people’s marriage, family, and social lives.

The amount of time SMEs are kept waiting beyond their previously agreed payment terms is a big issue. Almost a third of companies face delays of at least a month beyond their terms and nearly 20% are having to wait more than 60 days before being paid.

UK businesses with turnovers of under £1million wait an average of 72 days for payment of invoices, according to the Asset Based Finance Association, the body representing the asset based finance industry in the UK and the Republic of Ireland. By comparison, businesses with an annual turnover of between £1 million and £10 million wait about 53 days and businesses with £500 million-plus turnovers wait about 47 days.

Solutions

Fortunately, there are measures you can take to protect your company from the worst effects of late payments and to ensure you are paid promptly in future.

Research prospective clients

Before accepting a new client, carry out a credit check and find out if the company has a reputation for paying on time.

Agree prompt payment terms

Get clients to sign a contract or agree to terms and conditions that specify when they must pay your invoice and late or overdue fees. Include your payment terms on every invoice.

Send invoices promptly

Don’t delay in sending out invoices. Check that the details are correct to avoid delays.

Offer a range of payment options

Make it easy for customers to pay you by offering them a variety of payment options such as Direct Debit, PayPal, and credit card. If your clients are based in a different country, accept payment in their currency.

Use invoice finance

Invoice finance will give you essential working capital (90% of the approved total invoice) while you wait for the outstanding invoice to be paid. You’ll receive the remaining 10% when your client pays your invoice.

Use an invoice tracker system

You’ll receive an alert when invoices are overdue.

Keep to a schedule

Invoice on the same date every month so that your clients known when to expect your invoices.

Set up internal invoice reviews

Hold regular weekly or monthly internal finance meetings to review your invoices.

Don’t back down

If you have late fees for overdue invoices then make sure you follow through and charge them. By law, you can claim interest and debt recovery costs if another business is late paying for goods or a service.

If you haven’t already agreed when the money will be paid, the law says the payment is late after 30 days for public authorities and business transactions after either:

  • the customer gets the invoice
  • you deliver the goods or provide the service (if this is later)

You can agree a longer period for payments from one business to another—but if it’s longer than 60 days it must be fair to both businesses.

Hire a part-time CFO

For a fraction of the cost of a full-time CFO, the CFO Centre will provide you with a highly experienced senior CFO. Your part-time CFO will assess your company’s cash flow position and take the following steps:

  • Identify and address all the immediate threats to your business. It might involve chasing late paying customers, using invoice financing to give the business an immediate cash injection, or arranging short-term loans or overdraft facilities with your bank.
  • Determine where improvements and savings can be made.
  • Instigate the use of regular cash flow forecasts. This way you’ll know in advance if your company is going to face a cash shortfall and can make arrangements for extra borrowing, or take other action.

End your late payment and cash flow problems now by calling the CFO Centre today. To book your free one-to-one call with one of our part-time CFOs, call 91 9967531075 / 9867916753 or just click here.

Don’t Bankrupt Your Company Like So Many Olympic Host Cities Do

The Olympic Games allows top athletes the chance to compete against the best in the world and gives TV audiences the opportunity to watch non-stop sports for three weeks, but it’s usually an economic disaster for the city that hosts the event.

The fact that host cities are left with a few over-sized stadiums (so-called ‘legacy projects’) and mountainous debts once the 17-day sporting extravaganza is over shouldn’t come as a surprise.

Only the insanely optimistic continue to ignore decades of research that show hosting the Olympic Games rarely improves a city’s economy. Despite the promises of politicians, the costs are usually far higher than projections and the revenues far lower.

And contrary to what is promised, tourist numbers don’t go through the roof even during the Olympic Games. Take the 2000 Summer Olympic Games in Sydney, for example. They were expected to attract 132,000 tourists. Instead, just 97,000 arrived, reported the Globe and Mail’s International Affairs columnist Doug Saunders. Tourists who weren’t interested in the Olympic Games cancelled or delayed their visits for fear of crowds, he said. And instead of the eight to 10 million tourists a year who were forecast to visit Sydney in the years immediately following the Olympics, a steady 2.5 million visitors a year turned up.

Likewise, international investors don’t beat a path to a city’s boardrooms just because the host city has a new 30,000-seat stadium or a better bike path.

Yes, hosting the Olympic Games might put the city on the ‘world map’ for a few weeks but that comes at a cost of billions. An entertaining YouTube video that goes viral will do much the same these days at a fraction of the cost.

Even bidding for the honour of being chosen to be a host country is an almost guaranteed way of losing millions of taxpayer dollars. Chicago, for instance, reportedly spent $100 million on its campaign to host the 2016 summer games. It obviously lost out to Rio De Janeiro.

Now just because you have no plans whatsoever to host a sporting event or even to take part in one doesn’t mean you’re exempt from the risk of bankruptcy. That’s because bankrupting your own company is far easier than you might think. And unlike the people who lead the bids to host the Olympic Games, you can bankrupt your business in a matter of months rather than years—if you really put your mind to it! All you really need to do is manage your cash flow poorly. That’s enough to rock the foundations of even the most profitable business.

If you don’t find and fix the cause of the cash flow problem in your business and then put systems in place to manage it more efficiently, your company is at a very grave risk of following all those ailing Olympic Games’ host cities into the red. You can grab a free report on how to improve your cash flow position immediately, by just clicking here.

The stark truth is without cash, your business will be unable to meet its payroll obligations, be more likely to default on payments to suppliers and creditors, and in the worse case, be forced to cease trading.

You might think you’re immune from danger because your business is experiencing a high level of growth, but you’re wrong: expansion can exacerbate the problems caused by poor cash flow management.

Cash really is the oxygen on which every business depends. Without a steady supply of it, your business cannot survive.

That applies even if your company is profitable. Business consultant Bill McGuiness says, “The sad fact is that the majority of failing firms are profitable as they enter bankruptcy.”

Essentially, your cash flow problems are likely to be the result of one or more of the following:

  • Poor collection from debtors
  • Your fixed costs are too high
  • Your prices are too low
  • Your sales are too low
  • You’re giving customers too generous payment terms
  • You’re overtrading
  • You’re holding too much old stock

Just as an athlete can’t ignore an injury, you can’t overlook your cash flow problem. Like a dodgy knee, it won’t get better on its own. In fact, it will get far worse. Fortunately, there’s a quick and easy way to resolve the problem: hire a part-time Finance Director (FD) or CFO.

The CFO Centre will provide you with a world-class CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. It’s the business equivalent of having an Olympic coach at your beck and call. You can watch a 3-minute video here which explains the part-time CFO model.

Your part-time CFO will identify and address all the immediate threats to your business and then prevent cash flow problems from recurring.

Your CFO will encourage you to use regular cash flow forecasts so you know how much cash is going to be needed in the coming months. It means you’ll know in advance if you’re likely to face a cash shortfall and can make arrangements for extra borrowing, or take other appropriate action.

Having the right cash flow management processes in place and being able to spot peaks and troughs in trading to improve cash flow is one of the most critical components of any finance function.

Put an end to your cash flow problems now by calling the CFO Centre today. To book your free one-to-one call with one of our part-time CFOs, just click here now.

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