It is not likely to be news to any business owner that the COVID-19 pandemic has seen late payments soar.
The fallout from the crisis has seen revenues across the economy plummet, with the Office for National Statistics (ONS) reporting a 20.4% slump in GDP in Q2 of this year while the country was in full lockdown.
With such a squeeze on liquidity, it is no surprise that companies are not getting paid on time. In June, just before lockdown measures were eased, the Federation for Small Business (FSB) found that nearly two thirds (62%) of small businesses had experienced an increase in late payments, or had else seen payments frozen completely.
The picture hardly looks any rosier as we face a long winter battling the second wave. ONS figures for September showed that 54% of businesses were waiting on late payments even before the latest round of localised restrictions took effect.
In the past, the sentiment from small business owners surrounding late payments has often focused on a perceived disregard for payment terms, especially amongst larger businesses, and a failure from the government to tackle the issue.
But the landscape has now changed dramatically. If a client is not paying on time, it is more likely to be because they are experiencing cash flow problems of their own in the current circumstances, rather than a blase attitude to agreed deadlines.
Given the very real and understandable financial difficulties tens of thousands of businesses up and down the country are facing this winter, you might feel uncomfortable adopting strong-arm tactics the moment an invoice becomes late. But then again, that money might be crucial to keeping your head above water. So what’s the best approach to take?
Be proactive but flexible
Keeping money moving through the economy is crucial, so collectively we cannot afford to ignore the problems late payments cause. Individually, if it is a choice between chasing a debtor for payment or your own business going to the wall, it’s a no brainer.
But at the same time, we all have to understand that circumstances are what they are, there are very genuine reasons why many businesses are struggling to pay their bills on time. The best way we can tackle that is by coming together in a spirit of mutual understanding.
If an invoice does become overdue, there is no point ignoring it while worrying what to do. Be proactive - contacting a late paying client doesn’t mean you have to read them the riot act, in fact in our experience the best way to get results is to make the approach as friendly and polite as possible.
Rather than just reminding a client of the payment deadline and/or making demands, ask what you can do to help. Do they need another week or fortnight? Can they pay some of what is due now, and then carry over the rest for an agreed time period? Can payments be broken down into installments?
Another reason to act early is that you don’t want to let debts from a particular client mount up only to find out they have been declared insolvent. Then you face standing in line with the other creditors waiting to see what share of assets might be handed around.
It looks set to be a long, hard winter for UK businesses. No one can afford to let late payments get out of hand and start to cause irreparable damage to company liquidity. Act early, act amicably and be prepared to meet your clients half way. A little flexibility and we’re-all-in-this-together spirit will go a long way towards businesses supporting each other through this challenging period.