The late payment headache isn’t going away – but we can make it better.
Twelve years ago, I was part of a Project Team tackling the late payment crisis crushing small businesses (👋🏻 to my fellow PACE Alumni).
It’s crazy to think that this headache still persists today, and in many ways, it’s getting worse.
The Scale of the Problem
Did you know? The Federation of Small Businesses (FSB) estimated in 2022 that approximately 2.8 million (52%) UK SMEs experienced late and overdue payments, with an average of £22,000 outstanding per business.
That’s not a minor inconvenience for business owners; it’s £22,000 that they can’t spend on anything else.
Fast forward to today, and it feels like Groundhog Day. The same issues persist, despite the government’s 2024 crackdown on late payments; it’s difficult to say whether this will make a real difference.
For context, £22,000 might represent several months of salary, essential equipment upgrades, or the marketing budget that could drive growth. When that money is tied up in unpaid invoices, businesses can’t invest in their future or sometimes even cover their basic operational costs.
What Ten Years of Funding Taught Me
Working for over a decade funding working capital for businesses taught me three lessons:
1. Cash Flow Is Everything
Revenue on paper means nothing if it’s not in your bank account when you need it.
I’ve seen profitable businesses struggle to pay suppliers, miss growth opportunities, and even face closure because their cash was locked up in outstanding invoices, not any failure on their part.
2. Time Kills Recovery Chances
The longer an invoice stays unpaid, the less likely you’ll ever see that money (and the more it hurts, having a compounding effect on cash flow planning and business confidence).
Fresh invoices have high collection rates. Invoices over 90 days see recovery rates drop significantly. By six months, you’re often looking at debt collection or write-offs.
3. Systematic Follow-Up Pays Off
Failing to follow up on late payments promptly and systematically is one of the most frequent (and also easy to fix) cash flow mistakes.
Many business owners are uncomfortable chasing money – they worry about seeming pushy or damaging client relationships. But in my experience, professional, systematic follow-up actually strengthens business relationships by establishing clear boundaries and expectations.
Your reflection: How comfortable are you with following up on late payments? What makes it feel difficult?
Strategies That Actually Work
But there is hope. Here’s what I’ve seen work time and time again:
Ensure a Structured Accounts Receivable Process
This means having clear procedures for invoicing, tracking, and following up. It’s not enough to send invoices and hope for the best – you need a system that ensures nothing falls through the cracks.
Send Invoices Immediately
Not at month-end! The longer you wait to invoice, the longer you wait to get paid. More importantly, immediate invoicing while the work is fresh in everyone’s mind reduces queries and disputes.
Set Crystal-Clear Payment Terms Upfront
Don’t hide payment terms in small font at the bottom of an invoice – build them into your conversations. Payment terms should be discussed and agreed before work begins, not discovered after it’s completed. Make them part of your standard client onboarding process.
Your reflection: How clearly do you communicate payment expectations before starting work with new clients?
Use Automated Reminders
Trust me, they’re not “pushy.” Automated systems remove the personal discomfort from chasing payments while ensuring consistency. Most clients appreciate the reminder and professional approach.
Offer Small Early Payment Discounts
1-2% can work wonders for cash flow. This might seem like giving money away, but improving cash flow often more than compensates for the small discount cost.
Make It Super Easy to Pay
Multiple payment options remove barriers to payment. Bank transfers, card payments, online payment portals – the easier you make it, the faster you get paid.
The Impact of Small Improvements
Remember that cutting invoice payment time from 60 to 30 days is like giving working capital a 50% boost – without landing a single new customer!
This kind of improvement changes business operations:
- Better cash flow predictability
- Reduced need for external financing
- More resources available for growth investments
- Lower stress levels for business owners
Your reflection: What would an extra month of improved cash flow mean for your business operations or growth plans?
Questions for Your Own Business
Whether you’re dealing with late payments or want to prevent them:
- How structured is your current invoicing and follow-up process?
- What payment terms do you currently offer, and are they clearly communicated upfront?
- How comfortable are you with systematic follow-up on overdue accounts?
- What payment methods do you currently accept, and could you add more options?
- How would improved cash flow timing change your business operations?
Looking Forward
While we wait for systemic change, there are practical steps every business can take to protect their cash flow.
I’m curious: What’s your experience with late payments? Have you tried any of these strategies? What worked (or didn’t)?
My friends in Finance – what are you seeing out there? Are late payments still as big an issue as ever?
Piggy Bank Photo by Fabian Blank on Unsplash
Leave a Reply