Late payments: Is your business at risk?

Late payment of invoices remains one of the most persistent problems facing UK small businesses, and recent research suggests the situation is becoming increasingly difficult. 60% of UK small and medium-sized businesses report that customers are taking longer to settle invoices than they were a year ago. The average amount owed in outstanding invoices is now £72,000.

For smaller businesses, delayed payments can create serious financial difficulties, even when sales are increasing and the business is profitable. A business may have sufficient orders, healthy profit margins and a growing customer base, but none of these advantages will prevent cash shortages if customers consistently pay late.

The consequences can be considerable. Businesses may struggle to pay suppliers, meet payroll commitments or fund essential investment. In extreme cases, late payments can threaten their survival.

Fortunately, there are practical steps business owners can take to reduce their exposure.

Start by reviewing payment terms. Are customers clear about when invoices must be settled? Are invoices issued promptly and do they contain all the information customers need? Next, establish a consistent credit control process. Send reminders before invoices become overdue and follow up outstanding amounts quickly. Where appropriate, consider requesting deposits or staged payments. It is also worth reviewing customer credit limits, particularly where payment patterns have deteriorated. Finally, prepare a rolling cash-flow forecast covering at least the next three months. This can highlight potential shortages early enough for corrective action.

Late payments may be beyond the complete control of individual businesses, but the consequences need not be.