Small businesses scared to get tough on invoice payments
THREE in five businesses are struggling to maintain cash flow levels because of delays to bill payments, but small businesses are too scared to take legal action, according to new research.
Around 35% of businesses estimate that late payments cost them more than £10,000 a year, both in bank charges and the administrative costs of chasing payments, research by Tenon Recovery has found.
The poll of more than 1,200 entrepreneurs also found that large UK companies were the worst offenders when it came to late payments – 56% of those who experienced late payments said they had been from large UK companies.
Chris Ratten, head of Tenon Recovery in the North West, said: “Now more than ever, businesses must adopt a responsible attitude towards late payments to avoid the domino effect of business collapses that late payments can cause. This means not only making payments on time to avoid causing problems, but having clear payment terms, credit control procedures and chasing slow-paying customers.
“Additionally, business owners should consider more creative solutions – outsourcing their bookkeeping functions will provide further expertise in chasing down late payments and could actually pay for itself when it comes to getting back money. Similarly, invoice financing is a good means of improving cash flow and can provide a positive solution to late payment difficulties.”
Despite late payment placing increasing pressure on small firms, another survey, by Manchester-based Cattles Invoice Finance, has shown that more than 75% are reluctant to exercise their legal rights on debtors.
Only 24% of small business owners said they had taken legal action to recover outstanding monies because they feared damaging relationships and alienating their customers.
Darren Cottenden, regional managing director for the North West at CIF, said: “There is nothing worse than a debtor spotting a weakness and, if invoices aren’t chased, many companies will take advantage of the situation and avoid making payment, particularly when money is tight.”
