Managing cash flow is one of the most important parts of running a business, from tracking the money that comes in, to paying for outgoings such as salaries and energy bills.
Yet that can be made incredibly difficult when you are faced with a string of late payments.
Late payments are a common problem for businesses of all sizes, but they can be especially challenging for SMEs. A survey from NerdWallet of 1000 small business owners and decision-makers found that 55% of SMEs in the UK still have outstanding invoices from the previous tax year (2022/23).
The problem seems to be getting worse, as nearly half (46%) of businesses have more unpaid invoices now than they did the previous tax year, meaning SMEs may have to make reductions in their overheads, recruitment or even staffing. In fact, 28% of small businesses reported to have paused recruitment efforts due to unpaid invoices, and 22% had to make staff redundancies to compensate for their late payments.
The survey found that over a third of unpaid invoices were less than a month overdue (35%), with 27% between one and three months late, and 20% being four to six months late. It also revealed that most business owners typically waited a week before taking action about unpaid invoices. Half of the respondents said they sent reminders every week until invoices were paid, while a quarter pushed for payment every day. An additional 40% followed up failure to pay with a phone call or letter. Only 23% of respondents charged interest on top of the agreed amount for each reminder, while just 11% claimed debt recovery costs.
14% of businesses opted to use a debt collection agency to receive payment, while 8% wrote off the invoice altogether. Surprisingly 22% of small business owners were happy to wait and do nothing while the client withheld payment, which suggests that many businesses may not be aware of legislation surrounding late payments, or do not feel comfortable charging statutory interest.
If a payment is late, you are entitled to charge statutory interest on the unpaid invoice. Statutory interest is 8% plus the Bank of England base rate for business-to-business transactions. Read more about this legislation here
If you’re struggling with unpaid invoices, it’s key to act swiftly. Sending regular reminders and following up with phone calls or letters can help, but it’s also important to keep aware of legislation regarding repayments including interest charges. Outsourcing your debt recovery needs is often the best course of action if your efforts have not been successful. At Controlaccount we have over 40 years of experience and are experts in helping businesses improve their cash flow by quickly and efficiently collecting overdue invoices. Our services are delivered on a no collect, no fee basis, giving you additional peace of mind.
Our debt collection methods are ethical, effective, and transparent, and we aim to apply our expertise to help to free up your resources to focus on your core business. To discover how we can help, contact one of our friendly team.