More than three-quarters (77%) of the small businesses in the UK have been affected by late payments in the past 12 months, and a majority of the 1,772 respondents had written-off invoices due to non-payments, according to a recent Federation of Small Businesses (FSB) survey.
With more than half of the firms spending one to six hours per week chasing late payments, tardy clients are exhausting the SMEs’ already-stretched resources. "In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff," National Chairman of the FSB, John Walker, said. Late payments have been estimated to cost UK businesses £180 billion in debt interest charges in 2008. They also dampen young businesses’ growth and restrict productivity.
The FSB advocates the following actions that could allow business owners to take control of the payment collection:
- Give penalties, such as interest charges, if payment is late
- Offer discount for prompt payment
- Ask for a deposit before work begins
- Make sure the payment terms are understood before shipment
On the other hand, the FSB praised the Government for initiating the Prompt Payment Code which requires all government invoices to small firms to be paid within 10 days, but despite that, 18% of the businesses are still being paid late by the public sector. At the same time, they called for the Government to urge their contractors to pay small companies promptly.
Prior to the financial crisis, businesses take out overdrafts as a quick fix when late payment becomes a problem, but now that could be a headache as banks are unwilling to lend to small firms. Alternative sources of finance are needed. MarketInvoice fits perfectly by allowing SMEs to auction their invoices online to get cash in advance. Invoice buyers competitively bid against each other to advance the most cash with the lowest discounting fees. Furthermore, previous MarketInvoice clients have expressed satisfaction with the short amount of time needed, compared to traditional methods of high street financing, to get the cash in advance between one to three days.