While in the past invoices were fast and punctual, today a new norm has materialised. And for small businesses, it can seriously disrupt cash flow. Long payment terms are becoming an archetypal model for an increasing number of small businesses across the UK, and it’s not by choice. Pressured by bigger clients, SMEs are forced to agree to long payment terms, or lose out on business.

Nationwide cash flow qualms

The issue is evident across all major verticals, and has become such a problem that the media now regularly reports on the growing trend. Major beer company AB InBev was one of the latest bigwigs to find itself in the spotlight when it was accused of demanding arduously late payment terms from its smaller UK suppliers. Typical invoice process times top four months, a timeframe that Business Minister Matt Hancock labelled as “unacceptable.”
The latest research from Sage’s Small Business Panel echoes these concerns, finding that two thirds of firms have to wait for 60 days or more for payment, and more than half are having to wait for over 90 days.
Unfortunately, long payment terms are now a given, and SMEs that fail to accommodate the new trend may find themselves losing out to counterparts that do.
So how can your SME go head to head with long payment terms, and come out on top? Here’s three ways:

Offer incentives

 Make paying on time all the more appealing by offering clients discounts for early payments. For example, if the buyer coughs up within 30 days you could reward them with a 2% discount. Just be sure to crunch the numbers and ensure that your discounts don’t leave you out of pocket, and are worth your while.

Suggest financing

It could be that the reason your client is paying late is because they too are experiencing cash flow problems. One option is to suggest instalments, which see payment made in smaller chunks. This way the client doesn’t have to lump a large sum all in one go, and you still get cash rolling in.

Keep your cash flow in check with invoice finance

A lot can happen in 120 days, and when payment fails to arrive for months on end, cash flow can be seriously compromised. For this reason, it’s critical to have a cash flow management strategy in place that doesn’t cripple at the sight of a long payment term plan. With a sole focus on implementing smart cash flow finance for SMEs, CapGap’s ultra-efficient invoice finance service actively works to bridge the time gap between sending invoices, and receiving payment.
While long payment terms can be frustrating, it’s important not to categorise big businesses as the enemy. On the contrary, large scale entities often play a keynote role in keeping smaller suppliers and partners afloat. To us, the key is finding a happy medium that works for both parties, rather than simply capitalises on the fragility of SMEs.
Read more here.