The issue of late payments has become a growing concern for small businesses.
Recent data from Xero Small Business Insights reveals that, on average, payments were made 7.3 days late between April and June 2024.
This is an increase of 1.8 days from the previous quarter.
This marks the largest quarterly increase in late payments since the onset of the pandemic – with the retail trade and hospitality sectors hit hardest
This has further strained the cash flow of businesses already grappling with rising inflation and uncertain economic conditions.
Strategies to manage and mitigate late payments
To manage and mitigate the impact of late payments, we suggest you adopt several strategies:
- Clear payment terms: Ensure that your payment terms are clearly stated in all contracts and invoices. Specify the due date, late payment penalties, and preferred payment methods. This clarity can help set expectations and encourage timely payments.
- Invoice promptly and accurately: Send invoices as soon as the goods or services are delivered. Ensure that the invoices are accurate and include all necessary details to avoid delays caused by disputes or misunderstandings.
- Automate invoicing and reminders: Use accounting software to automate invoicing and send payment reminders. Automated systems can help you keep track of due dates and follow up with customers who are late in making payments.
- Offer early payment discounts: Encourage early payments by offering a small discount for payments made before the due date. This can incentivise customers to pay promptly.
- Build strong relationships with customers: Maintain open communication with your customers. Building strong relationships can make it easier to discuss payment terms and address any issues that may arise.
- Assess creditworthiness: Before extending credit to new customers, assess their creditworthiness. This can help you identify potential late payers and mitigate the risk of late payments.
- Legal recourse: As a last resort, consider legal options for recovering overdue payments. While this can be a lengthy and costly process, it may be necessary for persistent late payers.
Managing late payments can be challenging, but you do not have to navigate it alone.
Speak with your accountant or tax adviser to discuss your specific situation and develop a tailored strategy to improve your cash flow.
An experienced professional can provide valuable insights and help you implement effective solutions to protect your business from the adverse effects of late payments.
Speak to a member of our team for more information or assistance.
