According to figures from Bibby Financial Services, which provides financial services to SMEs, the average level of bad debt – where a company suffers because clients fail to pay the full sum invoiced – has risen by 61% in the past year.
Late payments also climbed last year, with nearly a fifth of businesses reporting that they were paid for their services after 90 or more days.
It is not surprising, therefore, that UK company profit warnings for the first quarter of 2023 rose to 75 compared with 72 for the same quarter in 2022.
Meanwhile a promised review of the powers of the Small Business Commissioner which started in 2020 was delayed, like many things, by the disruption of the Covid pandemic and lockdowns and has been resurrected in February this year.
Among the proposed actions was to reduce the maximum payment period from 60 to 30 days for businesses that had signed up to the (voluntary) Prompt Payment Code and to allow the Small Business Commissioner to impose legally binding payment orders, launching investigations and levying fines.
In the meantime what can businesses do to ensure their invoices are paid promptly?
Firstly, when considering taking on a new customer or client ensure that you do adequate credit checks on them.
Make your terms and conditions clear from the start. You can offer a variety of payment methods to make life as easy as possible for your customers.
With new clients it can be a good idea to ask for, say, a 25-30% deposit up front on their first order as a gesture of good faith.
Ensure you have a collection process what can be monitored and checked at every stage of invoicing so you get an early warning of potential problems.
The FSB (Federation of Small Businesses advises: “call the customer before the payment due date to make sure it has been received and there is no query, especially when it’s a large payment. Where payment has not arrived, make immediate contact.”
To mitigate the inevitable occasional late or missed payment it advises keeping a close eye on your own cash flow: “A regularly updated cash flow forecast to ensure you stay within your financing facilities is always a recommended.”
Above all, the advice is to communicate frequently, not only with the customer but with your suppliers and your bank if it looks like a customer’s late payment is going to impact on the smooth running of your own business.