The Impact of Covid-19 on Late Payments

It’ll come as no surprise that Covid-19 has hit business cash flow pretty hard. As customer numbers have plunged through the floor and many companies have struggled to keep their heads above water, all of those nice, neat cash flow predictions have gone out the window. And while the situation is still incredibly difficult, we are starting to see some small light at the end of the tunnel – a signal that things will go back to normal one day. But for now, businesses need to focus on keeping as much of the money they are owed in their business as possible – which means looking at their late payments. In this blog, we look at what Covid-19 has done to the state of late payments in the UK, and how you can survive it.

The Impact

Late payments have always been the bane of SME’s, and we’ve talked about it a lot over the years. However, usually late payments are manageable, while not ideal, and while they do cause businesses to shut down, if handled properly they can be survived. However, a survey by the Office for National Statistics has found that businesses are struggling more than usual, with over 54% stating that they are waiting on late payment for multiple invoices as a direct result of the Covid-19 crisis. On top of that, 47% of businesses have seen revenue decline, and 9% have seen their income drop to below 50% of what it was last year.

Why Has This Happened?

In short, this has happened because Covid-19 sent the country into a panic, and then into lockdown. With customers suddenly unable to visit premises and spend money, along with the threat of lost jobs, reduced pay and generally tight financial times, spending has been at an all-time low. Income suddenly dropped,

And the main response from business owners? To snap the purse shut, and try to retain as much money as possible. This wasn’t so that they could be greedy – it’s so that they have enough in the bank to pay staff, keep their premises (even while it’s shut) and generally pay the bills while they wait for things to blow over. And while the government support has eased the worry for some, many businesses are still trying to build and sustain their cash reserves so that they can survive.

This is absolutely understandable – but it also means that many have stopped paying all but the essential bills in the short term. They would rather let the odd supplier payment go overdue than risk missing a payment on something that could shut down their business. And so each penny to go out of the business is carefully scrutinised, and if it’s not essential, it doesn’t make the cut. If you’re the business on the other end of that, you could end up with quite a few people owing you money, but no one paying their bills.

Surviving Late Payments

So, if you are being hit by late payments, you need to have a plan to survive them. Odds are that many outstanding invoices will be settled at some point, but ideally you need them to be settled sooner so that your own cash flow is protected. So, what could you do?

Advance Payments: One of the simplest ways to avoid late payments is to take them in advance. This way if the client wants to goods or services, you have to have received payment beforehand. This stops you going out of pocket, and means you will only be delivering paid for work.

Earlier Conversations: Be open, honest, and set your expectations up front. Business owners are often reluctant to start the discussions around late payments, and will put it off for months sometimes. But now is not the time to be shy – have the conversations about payments with clients, the earlier the better.

Invoice Financing: If you’re really struggling, you can always look to invoice financing. This allows you to release the money that’s tied up in unpaid invoices, and give you some working capital. We’ve talked more about invoice financing here.

Or, you can hire a professional. At Debtcol, we specialise in retrieving late payments for our clients, and doing so in a professional, friendly manner. We know that times are tough right now, and the last thing you need is to damage client relationships over late payments. That’s where we can help. To find out more, just get in touch with us today.