Delinquent Payments Carry Significant Consequences, Yet Offer paths for Resolution
Minimizing Late Payments for UK SMEs: Strengthening Invoicing Processes and Cash Flow
Late payments are a common issue for small and medium-sized enterprises (SMEs) in the UK, often stemming from preventable administrative problems rather than customers' inability to pay. According to Novuna Business Cash Flow's data, 20% of overdue invoices receive no response, 15% get stuck in the customer's internal approval process, and 12% involve customers repeatedly requesting invoice copies, potentially as a means to delay payment [1].
To combat these issues, SMEs can take several proactive measures. Establishing strong, clear payment terms before a sale is crucial, including shorter payment deadlines and requesting deposits to reduce exposure and improve cash flow. Late payment penalties can also be included in contracts to deter delays and provide compensation [1].
Clear and consistent communication of these terms before and during the commercial relationship is essential. SMEs should also use credit risk management tools such as Trade Credit Insurance and business information services to monitor client payment behaviour and adapt terms accordingly [1]. Maintaining prompt and consistent follow-up procedures, escalating disputes as needed per a prepared plan, is also key [1][5].
Outsourcing credit control to a service can alleviate pressure for many businesses [2]. Government reforms have introduced tighter rules for large companies to pay invoices within 60 days (reducing to 45 days) and have enhanced enforcement via audit committees and the Small Business Commissioner to reduce late payments and support SMEs’ cash flow [3].
Avoiding administrative failures, clarifying payment terms, monitoring client risk, and taking advantage of available government and financial tools are vital for minimizing invoice payment risks for UK SMEs [1][3][5]. It is important to note that many late payments cost the average small business £22,000 a year and force around 50,000 companies to close annually [4].
Industry-specific trends show that manufacturing, transport, and admin services have some of the worst records for paying invoices on time, while education consistently pays within 30 days [4]. By addressing these common causes of late payments, SMEs can improve their cash flow, reduce financial stress, and better support their growth.
[1] Novuna Business Cash Flow [2] Outsourcing credit control [3] Government reforms for late payments [4] Late payment statistics [5] Best practices for managing late payments
- Insurtech solutions can play a significant role in addressing late payments for SMEs, offering technology-driven solutions to manage credit risk and improve cash flow.
- Technology adoption in personal-finance management can help SMEs streamline their business events, allowing for more efficient invoicing processes and timely payments.
- The convergence of finance and technology, also known as fintech, provides various opportunities for SMEs to better manage their cash flow and reduce late payments, particularly through integrating business information services within their systems.
