Late payment is the bane of small firms’ lives. Paying suppliers late has become increasingly commonplace, and is even deemed quite acceptable practice by some larger firms who all too often treat smaller companies as a free credit line. The impact on the cashflow of a business can be devastating, and in the worst cases, firms can even go under. But new developments in digital technology could help firms get paid promptly – and even identify potential late payers before any financial damage is done.
Late payment is much more than a minor inconvenience. It snarls up the day-to-day running of an enterprise, hampers its growth, causes some hard-hit companies to become late payers themselves, and, at its worst, puts a firm’s very existence in jeopardy. Half of small businesses say that their invoices were settled beyond the agreed date by large companies last year, according to new research from the Federation of Small Businesses (FSB). And many larger firms are also using their relative size to bully small suppliers into agreeing to payment terms of up to 120 days, a ruinously long period of time for an SME to wait for money owed. The payment time recommended by the Late Payment of Commercial Debts Regulations 2013 is 30 days, only increasing to 60 days in exceptional circumstances.
There are some simple practices that businesses can adopt to minimise their risk of being left out of pocket, as we’ve discussed on this blog before, but SMEs could also be using rapidly developing technology to avoid being paid late – and name and shame those who drag their heels when settling their debts.
At the most simple level, businesses should think about adopting electronic invoicing to automate their payment process and to ensure that bills are sent out as soon as work is completed. This type of software is commonplace and inexpensive, and will instantly transfer an invoice to a customer, also verifying the moment that they’ve received it. Not only does this have the advantage of avoiding wasted days in the payment process and encouraging a speedy response, but it is also makes a business appear slick and organised, which in its own way helps with the prompt transfer of funds. It’s a sad fact that some customers will take a disorganised approach to payment as a sign that they can probably get away with settling up later than usual.
If you do decide to use e-invoices, you must determine whether you plan to handle the work yourself, or whether you’ll outsource it to an external expert. Hosted e-invoicing services from the likes of Sage and Avangate can handle some of the complexities of payments, such as taking into account VAT regulations and foreign currencies, where applicable. But, while some small firms may be prepared to automate their accounts payable, many still prefer to keep control of such an important function in-house.
The British Chambers of Commerce (BCC) recommends the use of e-invoicing, particularly by public sector organisations working with smaller businesses. But not long ago, it went a step further and called for the abolition of cheques by 2018 to prevent tardy bill payers using their chequebook to delay payment to SMEs yet further. Its research has shown that while just one in five small firms likes to be paid by cheque, two-thirds find that they are regularly paid this slow and old-fashioned way.
But the message has yet to sink in with many small business owners that technological advances could speed up their processes and see their books balanced more quickly. At present, just one in five uses e-invoices, the FSB calculates.
Taking electronic payments via mobile devices and smartphones is an area that is growing rapidly – and brings great potential benefits to small businesses. There are a number of innovators who have launched mobile apps that allow business owners to send invoices to customers instantaneously and receive payments electronically in response. Free apps such as Invoice2Go and Xero create very professional-looking e-invoices via mobile devices. And services such as Adelante and Pingit by Barclays have all revolutionised payment times for SMEs by enabling them to send bills and receive payments immediately. RBS NatWest also offers a similar system, but later this year this type of technology should be available to many more bank customers when the new Paym system is launched. This banking industry-wide mobile payments system could link every bank account in the country with a mobile number, making e-payments vastly more easy – a thing that can only help small firms get money they’re owed quickly.
Naming and shaming
One way to avoid being paid late at all is being able to spot those companies with a reputation for having short arms and long pockets. But all too often small suppliers are loath to criticise larger companies who pay late for fear of losing business in the longer term. Satago, a tech firm that launched late last year, could now enable small firms to name the worst offenders, as it collects data on late payment from freelancers and small companies and compiles the information into reports on the payment behaviour of the organisations named. The company anonymises the responses, so protecting the aggrieved businesses, but SMEs are given access to the real facts about who can be relied upon to pay up – and those who can’t. This is a massive advance and one that has the potential to make a real difference to smaller firms, in particular.
Thanks to the various wonders of modern technology, small companies are finding more ways to fight the rot of late payment. But in a world where two-thirds of SMEs still lack the capacity to accept payment even by debit or credit cards, according to the FSB, there is still much work – and educating – to be done. Small firms should take advantage of all of the advances that the 21st century has to offer in their efforts to be paid on time. Chasing payment has really never been so advanced.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net