According to the Federation of Small Businesses, 58% of members are owed up to £10,000 in late payments from clients, with 15% owed between £10,000 and £20,000, and 27% owed over £20,000 from their late paying clients.
Wylie & Bisset say that setting out credit terms and communication with clients and customers is key to addressing the issue.
Partner Andrew Cowling said: “SMEs should seek to communicate with their customers in advance and put procedures in place that will greatly reduce the risk of late payment arising, but when late payment does become an issue, it is important that business owners talk to their clients about it, explain the situation clearly and that they want paid for the goods or services they have provided.”
Cowling advises that SMEs spell out their credit terms and conditions at the outset, carry out some due diligence on their customers, check their credit worthiness, set a credit limit and explain what will happen in the event of late payment arising, such as withholding goods or services.
“Know your rights in relation to collecting debts,” he said. “Make sure you have a Retention of Title clause in the terms and conditions and make it as easy as possible for your customers to pay by giving them a range of options, such as by credit card, cash, cheque, Paypal or whichever method best suits.”
And with regard to managing cashflow, Cowling points out that there are various apps available that can issue invoices, send reminders and chase payments automatically. Where cloud-based accountancy software is used, such apps can link with this software to forecast cashflow.
“The key things to managing late payment are to set your credit terms and conditions at the outset, because that can help prevent late payment from arising in the first place – but if it does become an issue – then direct communication with any late paying customers is vital,” he said.