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FINANCE, BUDGETS AND CASHFLOW
Small businesses owed £21,356 in late payments in September
Late payments1 can be a burden for small businesses to bear and are often amongst the hardest hit businesses across the UK. Recent research from Intuit QuickBooks2 has revealed that small and medium-sized businesses (SMBs) have seen an 11% increase in overdue payments in the last year alone.
Of these, the smallest businesses are hit the hardest, often having the highest proportion of invoices owed to them. Micro-businesses (those with a turnover of between £1,000 and £19,000), for example, have experienced a 60% increase in the amount owed from overdue payments.
But there are ways for small businesses to protect themselves against the devastating impacts that come with dealing with late payments. Here, we’ll go through three things business owners can do to safeguard their livelihood.
What are late payments?
A late payment is simply an invoice that hasn’t been paid yet. Over the past year, the amount of money owed to small businesses has increased significantly. The latest Intuit QuickBooks Late Payments Bulletin found that SMBs with at least one overdue invoice were owed £21,356 in late payments in September. On average, this is 62% of the typical monthly turnover for SMBs3.
This average amount owed to SMBs in late payments alone increased by 11% in comparison to the £19,224 worth of late payments in September 2020 - and the recent lockdowns are considered to have had a significant impact on this.
A huge portion of the invoiced amount owed to small businesses (64%) was revealed to be overdue in September. And micro-businesses are those suffering the most from late payments.
It was found that 41% of micro-business’ invoices due in September of this year were still overdue at the time the report was published. Micro-business’ are also owed considerably more when compared to last quarter. The average amount owed to these smallest businesses rose from £1,900 in May 2021 to £2,400 in September, marking an increase of 26%.
Chris Evans, VP and UK Country Manager at QuickBooks, said: “It is concerning to see that late payments are worsening for the smallest businesses. With tighter profit margins and limited cash flow, these businesses will be the most heavily impacted by unpaid invoices.”
In order for small businesses to survive despite late payments, they should look at tightening their payment terms and keeping a close eye on their invoices and payments. It’s also a good idea to make paying invoices as easy and seamless as possible by utilising digital invoicing software.
Preventing late payments through accounting software
Automating your payment process can be the difference between success and suffering with cash flow problems.
There are plenty of benefits to automating your payment using accounting software. As Chris Evans explains, accounting software can “flag invoices and send automatic reminders as soon as they become overdue, saving valuable time and reducing stress”.
Accounting software can automatically track paid, opened and outstanding invoices. This means you can easily see the status of your invoices, giving you more control over your finances. The real-time alerts offered by digital accounting means you’re not left manually keeping track of each invoice, giving you more time to spend on other areas of your business.
The invoice tracking software offered by QuickBooks also gives you the option to send automatic reminders to your suppliers, meaning you don’t need to spend time chasing up late payments.
Offer more ways to pay
If suppliers and clients are offered various ways to pay invoices, the payment process can be drastically sped up. Whether this is contactless card readers, direct debit collection or even PayPal for electronic payments, offering as many ways to pay means you’re not limited in how you can accept payment. This also increases the chance that the way you collect payment aligns with how your clients prefer to pay invoices.
QuickBooks financial management software integrates with GoCardless, which is ideal for recurring payments and direct debits. Your clients will only need to input their card details the first time and payments are then collected automatically.
You may also choose to use PayPal for payments - and your clients don’t even need a PayPal account. Make collecting payments even easier by including a ‘pay now’ button on your invoices, meaning you don’t need to share bank details with your clients. This can speed up the payment process while keeping your details private and secure.
Set customisable automated reminders
We know that chasing unpaid invoices takes time and can leave you feeling stressed and even a little awkward. So why not remove that stress with customisable automated reminders? By keeping track of each invoice status, you can easily send regular reminders to any unpaid invoices, ensuring your clients are reminded about paying you.
Take control over the frequency of these reminders so you’re not left waiting for unpaid invoices. And if your clients are reminded regularly, they’ll be more inclined to pay you faster.
Ensuring your invoices are paid on time is crucial to the success of your business. Investing in digital accounting software can make this process much easier, and take the burden of chasing clients away from you. By automating invoicing as much as possible, you can spend more time focused on other areas of your business.
1 Late payments are either: 1. invoices that were paid in full but paid after the due date or 2. still currently unpaid, or not paid in full
2Anonymised aggregated data from Intuit QuickBooks’s entire UK customer base. A snapshot of the late payments issues faced by SMBs in the UK today.
3 For SMBs in the private sector only. Government business population statistics state there are 5,583,245 private sector SMEs (0-249 employees) in the UK, with an average turnover of £2.3 trillion (£2,309,836,000,000). The average annual turnover is therefore £413,709. Dividing this by 12 gives the average monthly turnover of £34,475.75.
Feel better about getting your invoices paid on time? Know what you’re owed and give customers more ways to pay.