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Late payments are biggest threat to East Sussex businesses
- 48% of SMEs say late payments put their business at risk of failure 1
- 31% of SMEs reported serious cash flow issues as a direct result of late payments 1
- 47% of SME owners and managing directors had to stop their own salary 2
- 90% of small business owners have suffered from mental health issues resulting from the stress of late payment2
Business East Sussex Growth Hub has issued a warning to small and medium sized businesses (SMEs) about the impact of late payments on their financial health. The average SME is owed over £80k1 – the cost of a high-end Range Rover.
Businesses are particularly vulnerable in January and February as cash-strapped customers, thanks to Christmas overspending and looming tax bills, will try and postpone payments for as long as possible.
This can be devastating for small businesses, with recent research revealing that almost half of SMEs (48%) have been affected by late payments to the point where the business was at risk of failing1.
Mike Watson, Business Navigator with Business East Sussex Growth Hub, said: “SMEs account for over 90% of businesses in East Sussex so there are serious implications for the local economy.”
Recent surveys show that 28 per cent of SMEs have been forced to delay payments to their suppliers1, while 47% per cent of owners and managing directors had to stop their own salary, seven per cent were forced to pay their employees late and 36 per cent could not pay tax due2.
Mike said: “Better management of cash flow is essential for survival, but 40% of businesses do not have clear debt recovery processes3. Not all business owners are aware of the available channels to collect outstanding balances and often fear damaging a relationship with a client.
“And with uncertainty over the exact nature of Britain’s exit from the EU, it is even more important that SMEs successfully manage their working capital position.
“Businesses need to take action now before it is too late,” he said.
What can you do to combat late payments?
There are many ways to proactively manage cash flow, but it often starts by having a policy. A credit policy is not a guarantee of getting paid promptly, but it provides a focus and guide for managing invoicing and overdue debts. Below are a few topics a policy should include:
- Assign a set credit limit based on their previous behaviour (which could be COD)
- Check their credit score before extending credit (with Experian, Creditsafe, etc.)
- Ensure you always get the full legal name and payment contact details
- Have written Terms & Conditions and get them signed if possible
- Confirm the credit period when you confirm the order
- Invoice promptly and accurately
- Chase regularly and be prepared to escalate up the customer’s chain of command
- Review unpaid debts regularly and agree future actions
- Hold back future deliveries (if possible)
- Take formal action
There is no better remedy than getting paid in full and on time, but there are other measures that can be employed to ease the cash flow situation. However, they often come at a cost and may require security.
- Talk to your suppliers – can you renegotiate their terms?
- Talk with the HMRC – will they accept a payment plan for monies owing?
- Seek a finance facility (i.e. overdraft or similar facility, term loan, etc.) to underpin cash flow
- Investment, from own funds or external sources (by selling shares, giving another equity)
How can Business East Sussex Growth Hub help you?
If you do not have a credit policy, we can discuss the merits of having one, assist with compiling the basic elements, and guide you to an expert in the field.
Small businesses want to be able to maximise their buying power for greater profitability but may not be able to due to non-payers. Seeking a cash injection is one solution, but there are many options, we can help with explanations and navigation to suitable financiers.
Talking to the “supply” side of the business can be daunting so chatting through the issues with a Growth Hub Navigator will enable you get independent unbiased feedback. Also, it may help identify which strategy is the most appropriate.
Better management of cash flow is essential for survival, but not all business owners are aware of the available channels to collect outstanding balances and often fear damaging a relationship with a client. Talking through the possible options with a Growth Hub Navigator provides with an independent sounding board.
The B-word – with uncertainty over the exact nature of Britain’s exit from the EU, it becomes even more important that SMEs successfully manage their working capital position. Even with a deal, trade in both directions with the EU will be impacted. For example; the costs and terms of supply/purchase, the due date and amount of tax payable, the need for additional certification and licensing. At BES we receive regular briefings and have links to connected organisations, so we can navigate you to the sources who should have the answers.
Want to know more?
Business East Sussex Growth Hub provides tailored advice and support to help businesses grow and be ready for the future. Our team of experienced and approachable business navigators (like Mike) can provide bespoke strategies or signpost to appropriate organisations.
General information on a range of issues from accounting to Brexit is provided through events, its website and on social media. Look out for our #TopTipTuesday on Facebook, LinkedIn and Twitter
There will be a series of workshops to help businesses navigate a range of potential issues over the coming months. These will be held in different locations across East Sussex. Check our events pages for further information.
Sources: 1. Dun & Bradstreet; 2. Construction News; 3. Liberis Business Finance