Small Business Assassins – Late Payments And Unpaid Debts

Did you know that 72% of freelance contractors, sole traders and small or medium sized businesses reported being paid late in 2016? It seems like an astronomically high number, but actually, late payments are the bane of any business owner’s life.

They are also an aspect many just accept and learn to deal with. But there has been a lot of research done into the issues small business face, particularly in the financial arena. The results of those studies all tend to find the same thing – unpaid invoices and overdue debts are the biggest killers of small businesses across the country. In fact, a survey conducted by the British Chambers of Commerce into economic data found that:

• 76% of small businesses suffered cash flow problems in the last year as a direct result of not getting paid on time.
• 2 out of every 5 businesses state they have experienced chronic late payment problems, saying that an average of 32% of invoices they issued were paid late.
• 25% of small businesses suffering late payment issues spend over 3 hours a week chasing late payments. When asked, 50% of those businesses were owed at least £5,000 in overdue payments, and 20% were owed more than £20,000.
• Two-thirds of small businesses in the UK have written off unpaid invoices over the past year, rather than seeking debt recovery solutions. The total debt written off by each company averaged more than £5000.
• Major problems caused by late payments include the inability to pay suppliers and lower profits.
• Only 19% of small businesses attempt to charge late payment fees, or recover debts owed.
• 89% of SME’s cite the private sector as the biggest problem for late payments, with businesses in these sectors responsible for the vast majority of unpaid invoices.

Why Is The Private Sector A Problem?

All of those points are slightly alarming, but the most interesting has to be that last one. Private sector businesses are quickly being pinpointed as a great source of financial difficulty by smaller and even medium to large sized businesses, due to their penchant for not paying bills on time. You would think that this type of industry would be self-regulating to some degree, attempting to lead by example and pay all bills on time, so that their clients do the same. But this is not the case. Instead, what we see is a delayed payment cycle, where many businesses have no choice but to delay payments to their suppliers because they are not being paid themselves. When this study was done, 47% of SME’s involved were waiting on overdue payments of between £1 and £5000, 31% were owed between £5,001 and £30,000, and 12% of SME’s were owed in excess of £30,000 in late payments.

Because SME’s don’t have the resources of bigger businesses, they will often spend upwards of 24 hours every month chasing these late payments themselves. Alongside this time sink (which could be better spent on other things), SME’s will often accept this culture of late payments and look to find other ways of easing cash flow. This usually means bank overdrafts, which are expensive and almost impossible to pay off without taking steps to improve future cash flow.

Do You have Late Payments Or Bad Debts?

But here’s the kicker. If SME’s decide not to chase these late payments, then there is the danger of acquiring bad debt. If your customer is being pursued vigorously by a number of creditors for late payments and you simply accept them, then you are at the end of a long queue for payment and at the greatest risk of incurring a bad debt if the business should fail. However, the same study showed that over 2016, 44% of SME’s had been forced to write off between £1 and £5,000, and 16% had written off debts of between £5,001 and £25,000. These write offs are a direct hit to cash flow and profitability, and often the result of bigger businesses continuing to order goods and services from smaller ones despite knowing they cannot pay for them.

So what does all this mean?

Simply put, it means that no business should have to settle for late payments, or be forced to write off debts. By employing a professional debt collection agency, businesses can ensure that they will get the full amount owed to them by their clients, every time. But not only does a professional outsourced debt collector help claim your rightfully earned money, we act as a deterrent, showing clients that late payments will not be tolerated and encouraging prompt payment from repeat customers. If you would like to know more about how a professional debt collection agency can help you improve your cash flow, please get in touch with us today for your free, no obligation consultation.