The issue of late payments continues to plague thousands of small business owners across the UK.
On average, most small and medium-sized enterprises (SMEs) are awaiting a backlog of payments of around £27,000, which equates to around one in six invoices (17%) overdue from customers or suppliers.
Whilst the issue of late payment affects all areas of industry, one area which has been particularly exposed is the UK’s highly successful creative sector. Estimated to be worth up to £115 billion annually to the UK economy and employing more than 2 million people, the industry covers everything from music and the arts, TV and film, IT and software through to advertising and marketing.
The vast majority (65%) of businesses in the creative industry are made up of 2-5 employees, with many classed as microbusinesses or operating as lone workers on a freelance basis. Given their size and scale, many simply do not have the financial capacity to manage without prompt payment.
Back in 2018, the invoicing firm, MarketInvoice found that a typical invoice in the creative sector, worth £38,137, was settled 13 days beyond payment terms, leaving the industry £1.1bn out of pocket at any given time. Larger companies were more likely (51%) to pay the creative industries later than smaller businesses (41%). It also found that one in seven (14%) take more than 14 days beyond agreed terms to pay.
In a year where cost pressures have become a huge burden on the shoulders of many small businesses, a significant number are just surviving rather than thriving.
If late payment of invoices is affecting your business, there are things to consider that can help you manage this issue, including:
1. Written agreements
Whilst the practicalities of business may be that you are sometimes unable to put in place a written agreement with a customer, it is always best practice to have some form of written agreement documenting the rights and obligations of the parties, especially payment terms.
It may sound obvious but having a conversation with clients about your payment terms before work commences should be a priority. Also make your payment terms clear in your invoicing. Don’t leave any room for confusion or doubt. Ensure payment terms are issued promptly and that payment terms are clear and that they outline how much the client needs to pay and by when.
2. Know your customers
You may be able to get a good understanding of your business customers by checking their credit history. That would allow you to find out whether they have a record of late or missed payments and can give you the heads up on any potential problems. Whilst financial status is important, it is also crucial to know exactly “who” you are dealing with. If you deal with individuals, ensure that you know their full “legal name”, as this information will be vital should legal action ever become necessary.
3. Offer multiple payment options
With more ways to pay, clients can settle the bill in a way that’s simple and convenient for them. If a customer does default on payment, discuss with them mutually acceptable methods of repayment. Opening a line of negotiation with customers to try and reach an arrangement for payment to be made can be beneficial to both parties, especially if you are able to be more flexible than your customer financially. This should always be balanced against the risk of the debt increasing.
4. Leverage relationships
Build a friendly relationship with the person in the finance department who pays your bills. Even if they’re just an administrator, they may give you some insight into why any payment has been delayed. An open line of communication with your customer in respect of finances can sometimes improve your chances of being able to achieve a mutually acceptable agreement regarding payment if your customer fails to make payment for whatever reason.
5. Know your options
If you’re facing a persistent non-payer or you’re struggling to get an invoice paid, there are options to consider. Acting quickly is important if you are faced with a persistent non-payer. You may wish to contact a debt recovery lawyer to understand your legal position and get tailored advice as to the options available to you to seek recovery of outstanding debt. If the dispute cannot be solved easily and informally, you may be able to explore commercial mediation (where both parties are invited to talk through the dispute and reach an agreement) or another form of alternative dispute resolution (ADR). A solicitor will be able to talk you through these different options.
Comments