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Are unpaid invoices ruining your small business?

Are you too embarrassed to chase down slow paying customers?  If so, you are not alone.  According to a recent study, one third of small businesses are reluctant to chase down slow-paying customers because they don’t want to annoy them or they “feel too embarrassed.”  As a result, thousands of pounds are being written off each year as bad debt.

The study was conducted by automated credit control service Satago and shows alarming statistics for the SME sector.  Although one in four businesses surveyed believes that the issue of late payments has gotten worse over the past two years, 81 per cent said they avoid chasing customers because the process is too ‘uncomfortable’.

UK SMEs shouldering £39 billion of late payments

A separate survey carried out by Bacs Payment Schemes shows the extent of the bad debt burden on small businesses across the country.  Bacs estimates the value of late payments to be around £46.1 billion in total, with £39.4 billion being shouldered by SMEs and £6.7 billion by large corporates.

The finance gap created by late payments

The problems caused by late payment debt burden are familiar to many small businesses.  Basically, when you don’t receive payments from customers on time, then you are unlikely to be paying your suppliers on time.  An occasional late payment might be forgiven, but a regular habit will leave your cherished business with a tarnished reputation.

Urgent

Urgent

If you don’t have arrangements with a lender in place to allow you to borrow more when invoices become very old, then your business could suffer serious cash flow issues which ultimately threaten its survival.

Given obtaining credit from high street banks is still a big issue for many small businesses, a number of them have turned to short term loans provider like Wonga instead.  Providing borrowing which should be repaid within weeks, short term loans gives business owners some breathing space to pay their supplier, while waiting for customers to settle their invoice.

Being proactive – the ultimate answer

While short term loans work well to address a finance gap, providers like Wonga make it clear that this type of borrowing is intended for occasional use.  Ultimately, a business needs its customers to pay on time in order to thrive.

According to the Satago study, it seems many SME owners know they can do more to make this happen.  30 per cent believe they would recover more debt if they are more proactive, and 13 per cent believe they would recover more than 50 per cent of amounts owed if only they chased harder.

Currently, three quarters of small businesses don’t have a proper debt chasing process, and a vast majority do not have an established escalation process for late payments.  The tactics employed to chase down invoices include telephone calls, emails and legal action.  Only 15 per cent utilise late payment regulations to charge customers for late payment. So, if the issue of unpaid invoices affect your business, then take some steps to put a process in place, use the law and use a third party to chase down slow-paying customers.

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