• How Can A Small Business Survive Late Payments?

    How can small businesses survive late payments?

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    How can a small business survive late payments in the wake of the coronavirus pandemic? It is about two things. Firstly trying to avoid situations where you could suffer a late payment and then mitigating the impact on your cash flow should you be paid late.

    UK Late Payments

    A recent study conducted by the Federation of Small Businesses (FSB) has found that the UK's late late payment crisis has worsened during the Covid-19 lockdown.

    Apparently, 65% of small businesses that supply goods or services to other businesses have experienced being paid late or having payments frozen. This will place very significant cash flow pressures on those firms that are affected. If the money doesn't come in on time from your debtors, you may still have to pay your staff, suppliers and other running costs.

    How To Survive Late Payments

    If you are one of those small businesses that have been affected, these are a number of actions that you could consider taking, in order to help your business survive late payments:

    1. Control The Credit You Offer - Stop granting credit to businesses that pay late. OK, you could put late payers on stop, but that is closing the stable door after the horse has bolted. You might be able to change the types of customers that you deal with, although that may be difficult to do quickly. Also when you are running a company, you may feel loathed to turn down business from anyone, especially in the current situation where the UK economy is entering a recession.

      Undertaking proper credit checks on customers, prior to granting credit is a vital part of controlling late payments. Furthermore, you might wish to consider using a professional firm of credit insurers or take out bad debt protection from an invoice finance company, in order to make certain that your company will not be adversely affected by bad debts. With these services, as part of the services, credit limits are set for each of your debtors, and invoices falling within those limits are protected, subject to whatever first loss clauses, or other limitations may apply - these will vary between providers.

    2. Effective Credit Control - The second action that you can take is to get your credit control system is functioning at its best. Our free guide to credit control sets out some key aspects of your process that should help minimise the amount of late payments. If you do not feel able to establish an effective system in the house, there are plenty plenty of outsourced options are available to support you.

    3. Invoice Finance For Cash Flow - I whilst it is undesirable to experience any late payments from customers, sometimes there is little that you can do to avoid it. If you are finding that late payments are impacting your cash flow, you can mitigate their impact by using an invoice funding service. This works by releasing the majority of the value of your invoice in advance, with the remainder paid to you when the customer pays (less the fee for using the service).

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