Unpaid invoices can be a death sentence for SMEs who desperately need to maintain a healthy cashflow. We look at a few ways that business owners can implement initiatives to reduce payment terms where possible.

According to the Federation of Small Businesses (FSB),late payment forces about 50,000 business to cease trading every year, and costs the economy an estimated £2.5 billion. It’s a problem that cannot be ignored. According to a survey by accounting software company Sage,17% of all payments in the UK were made lateand 9% eventually written off as bad debt.

Late payments can damage every aspect of a company – 40% of SMEs said they saw a direct, negative impact on their business as a result of late payments from debtors – while others reported that this lack of cashflow forced them to delay investing in their company and looking for ways to support their ambitions to scale up (25%). In addition, late payments meant SMEs were often unable to pay their own suppliers (25%), which creates a vicious cycle.

How to minimise the issue of late payments

Enable digital payments

When you are confident that your invoices will be paid on time, you can get a better forecast of your cashflow in coming months. And this is way it’s so important to make it as easy as possible for your customers to pay you. Enabling digital payments can make the process quick and simple – look for accountancy software that enables recipients to pay immediately via a ‘pay now’ button that’s embedded in the invoice.

Set up automatic reminders

Don’t wait for an invoice to become outstanding. Instead, use an online task tool to set reminders so that you can chase payment a few days before it’s due and keep chasing until its paid.

Be proactive… and inventive

As well as acting early and chasing late payments as soon as possible, you can incentivise suppliers and customers to pay on time. A possible option could include offering a discount for ‘early’ payments or payments that fall within the time period outlined in your terms. It will mean they are rewarded – and more likely to do business with you again – and your cashflow keeps moving.

Have a clear credit policy

If you are willing to offer credit, you need to be really clear how much that might be and when you will offer that option. In addition, you also need to think about when exactly you will consider a payment to be overdue. All of your customer- and supplier-facing staff must be aware of the credit policy and it should be communicated in writing before each sale.

Keep accounting teams on your side

Make the effort to nurture and maintain great working relationships with anyone involved in the accounting and finance side of the businesses, that you are invoicing on a regular basis.
How selective invoice finance can help

Late payments can affect your SME’s working capital, but business owners can maintain control of their cash flow with a fast, reliable and flexible alternative finance facility. Selective invoice finance – the service offered by GapCap – can help you combat any working capital issues you might come across by releasing payment for the invoices your business is owed immediately.

Our service is transparent and easy to understand – with no contractual obligations or hidden fees. Depending on your business needs at any given time, you have the flexibility to adjust your cashflow position by selling single invoices or selecting a few at a time.