It’s no secret that small and medium businesses struggle with late payment from customers. Indeed, it has become a widespread problem across the whole sector. However, new research from RBS Invoice Finance has shown the extent to which chasing payments has become a huge time sink for many companies.
This recent survey found that on average small businesses spend 130 hours, or the equivalent of three weeks, chasing late payments. Having to wait thirty days beyond the agreed credit terms is not unusual either.
This creates a huge problem for small businesses. Not only are man hours wasted in chasing up these payments, but the extra time that businesses are waiting for money to come in is causing real cash flow problems. Cash flow is the lifeblood of any business, especially SMEs, so this is a worrying problem.
RBS Invoice Finance has suggested a few tips for helping small businesses keep on top of overdue payments:
1) When working out your cash flow projections, be sure to factor in the worst case scenario – that is, not being paid for several months. This will make sure you know the impacts of this situation, and will prepare you to deal with them.
2) Offering an early payment discount can encourage customers to pay on time.
3) Clear payment terms, printed on all the relevant invoices, contracts and order forms, will make sure there’s no confusion.
4) Make sure you keep on top of invoices with an efficient plan and prompt chasing up of outstanding payment.
5) Invoice finance is also an option if your business needs to release cash flow quickly and securely.
Factoring and invoice discounting are both forms of invoice finance that let you borrow money against unpaid invoices. The factoring lender can release 90% of the invoice value within 24 hours, giving your business a real cash flow injection.
Factoring can especially help small firms with limited resources, as the factoring lender takes over responsibility for chasing up late payments, letting you get on with growing your business. This could help you free up those three weeks wasted on chasing payments – just think what you could do with them.