Late payments identified as key barrier to growth for small businesses
Almost a fifth (18%) of small business owners have identified late payments as the key barrier to their growth – behind only competition as the biggest barrier – according to new research by Superscript, the insurtech which provides SMEs with flexible insurance.
The research, part of a report titled: Supercharging small business growth, highlights the struggles that small businesses face with late payments – six in ten respondents said that more than 10% of their cash flow comes through late. While for three in ten respondents, over a quarter of their cash flow is delivered through late payments.
A quarter (25%) of respondents said they’ve had to pay suppliers late as a direct result of receiving a payment late, contributing to a vicious circle of late payments. Nearly a fifth of respondents said they have had to increase their business overdraft limit to compensate for a late payment, while 15% say they have had to make a loan repayment late. Nearly two fifths (37%) of businesses with 25 – 49 employees say they have had to either postpone hiring someone, make redundancies or pay cuts as a result of late payments.
With the potential impact on their business severe, small businesses are hot on chasing late payments. The survey found that while most will chase for payment via email or phone for the first few days after the invoice is due, over half (53%) of small businesses will wait no longer than a fortnight after the invoice due date before withdrawing their services. While two fifths (40%) say they won’t wait two weeks before they take legal action. However, some are more reluctant to pull that trigger, with a fifth (20%) prepared to wait three months before taking legal action.
Cameron Shearer, CEO of Superscript, said: “Late payments are a well-acknowledged problem for small businesses, but our survey really highlights the extent to which late payments hinders the growth of small businesses – whether it’s through Small businesses should take a holistic approach to dealing with late payments – putting steps in place to proactively try and mitigate them – opening up a business savings account, for instance – while protecting and covering themselves in the event that late payments have some sort of impact on their business.”
Here is Superscript’s recommended process for chasing late payments:
- Stay visible – Often late payments are simply a case of the finance team not keeping you top of mind. Send friendly emails reminding your client of the outstanding fee that needs to be paid.
- Pick up the phone – If the client is still not responding, call them. Emails can get lost. It’s much harder for clients to say “no” over the phone.
- Stop working – Let the client know that you will stop until you receive payment. It is standard practice, so if it is awkward, just say you are following your procedures.
- Consider a payment scheme – This may be a helpful option if your client is struggling to pay because they simply cannot afford it.
Take legal action – This should be the last resort. If the client continues to ignore your requests, take the dispute to a small claims court. Legal protection insurance will cover you for the costs of legal support – if you need to make a claim, clear, signed terms & conditions