Outstanding invoices are a nightmare for any company. Business leaders already have to manage clients, ensure delivery and make consistent sales – adding late payments into the equation increases the burden on both your team and your business.
Many companies collapse each year under the strain of trying to manage their cashflow. They need to pay for services on time, but their clients happily let invoices sit in their accounts department for months before releasing payments. Recent research by the Zurich SME Risk Index suggests that 53% of small to medium-sized enterprises (SMEs) in the UK are currently owed money as a result of late payments. This adds up to about £255bn that should be with smaller companies, but is instead just sitting in the bank accounts of their clients. Zurich estimates that around 20% of companies are owed over £20,000, and around 8% are owed over £100,000.
Late Payments Worldwide
Payment behaviour is different across the world, and often dependent on the prevailing interest rates in that region. For example, in Japan most companies pay earlier than required. With rates at zero to negative, there is no incentive to keep cash in the bank. Although Brazil, in contrast, has relatively high interest rates but a culture of naming payment dates on invoices so the client and supplier both have an expectation of the exact payment date – rather than the more vague 30-90 days we are used to in the UK.
The UK government has attempted to address the culture of late payments with several measures. They have forced large companies to openly publish their payment practices and how they are performing on average against their planned payment schedules. In addition, a small business commissioner position is in the process of being created. This commissioner will have the power to chase offenders directly and to try influencing further policy changes.
However, back in the real world it can be difficult to manage late payments and despite the efforts of the government to improve the general business environment in the UK, if you have open invoices now then you need to get paid. There are numerous professional bodies out there that can help – until vast change takes place in global payment culture, they are the best hope for many businesses.
What are your experiences with late payments? Leave a comment below and let me know, or get in touch on LinkedIn.