I have used the mantra “Turnover is sanity, Profit is vanity and Cash is reality” for years. It was drummed into me many moons ago as an accounting trainee. In fact, I have presented a cash improvement workshop to coach business to understand their own cash cycle and where it can be improved to numerous companies.
Late payments are a significant issue for small businesses across the UK, costing SMEs around £22,000 per year on average. With estimates suggesting that 50,000 businesses close annually due to cash flow problems caused by delayed payments, the government has introduced measures to tackle the problem. However, these changes will not take effect immediately, so what can you do to protect your business now?
What’s Changing?
Here is a summary of the government’s proposals:
Fair Payment Code: Replacing the Prompt Payment Code, this new code aims to set clearer standards. Companies can achieve gold, silver, or bronze status by demonstrating prompt payments, encouraging faster settlement of invoices.
Increased Transparency:
Larger businesses will soon be required to disclose their payment practices in annual reports, holding them accountable for slow payments to smaller suppliers.
Stricter Laws Under Consultation:
The government is considering tougher legislation, potentially forcing big companies to pay SMEs on time. Non-compliance with reporting regulations could lead to criminal penalties and unlimited fines.
The Impact on Small Businesses
According to the Federation of Small Businesses (FSB), more than half of UK SMEs suffer from late payments every quarter, with many forced to rely on expensive loans or personal savings to bridge cash flow gaps. The FSB reports that this damaging practice severely hinders growth, innovation, and even the survival of small enterprises. The government’s focus on addressing late payments could be a crucial step in levelling the playing field for SMEs.
What You Can Do Now
While these changes are in progress, there are practical steps you can take to manage late payments and protect your business:
Clarify Payment Terms: Ensure your terms are explicit in contracts and invoices. Consider moving from 60-day to 30-day payment terms to speed up cash flow.
Chase Payments Early: Send reminders before payment deadlines and follow up immediately when invoices are overdue.
Offer Early Payment Incentives: Small discounts for early payment can encourage clients to settle invoices sooner.
Use Electronic Invoicing: Switching to digital systems can reduce late payments by up to 20%, making it easier to track and receive payments.
Consider Invoice Financing: If late payments are seriously impacting cash flow, factoring or invoice financing may be worth exploring—though it comes at a cost.
Build Client Relationships: Strong communication and regular check-ins with clients can help prevent late payment and sort issues quickly.
Looking Ahead
The new Fair Payment Code and transparency requirements aims to put pressure on large companies to pay promptly. But these measures will take time to take effect. In the meantime, taking a proactive approach to payment terms and customer relationships will help protect your business.
If you are facing persistent overdue payments or need advice on how to manage your cash flow, feel free to get in touch. Also, if you want to run a cash improvement workshop for your business, please contact me. I am here to ensure your business thrives, no matter the challenges.
