Late payments costing London’s one million SMEs £45bn a year

Companies urged to automate finances to help offset time-consuming chasing of late payments

Automating credit control, payments and receipts would help small and medium-sized enterprises (SMEs) save time spent chasing late payments that could otherwise be more constructively used in the business. In addition, businesses who are automating such processes are being paid on 30 days in comparison to the national average of 72 days.

That’s the message from online accounting software provider Clear Books after a recent report suggests that unpaid invoices and the costs associated pursuing payments, as well as longer payment terms, could be costing the UK SMEs £250bn a year. When taking London’s one million SMEs into consideration, this cost would stand at more than £45bn of liquid cash flow every year. SMEs in London are responsible for 2.4m jobs - the equivalent to 51 per cent of employment in the region.

A report from Siemens Financial Services entitled ‘Mind the Payment Gap’ said that SMEs tend to suffer from slow and/or late payments disproportionately more than larger companies. It said that businesses with an annual turnover of under £1m wait on average 72 days for invoices to be paid, whilst those with an annual turnover of between £1m and £10m wait on average 53-54 days. 

“Businesses that are still using paper accounting or even simple spreadsheets should investigate the many automated options available on the market to help mitigate the occurrence and impact of late payment,” explains Clear Books CEO Phil Sayers.

“We would urge accountants, for example, to highlight to their clients the importance of cash flow and encourage them to use software that automates it and makes the process more efficient. It can be difficult otherwise to identify when a payment is due or overdue let alone chase it, if all your records are being kept in a shoebox, on paper or even just on a spreadsheet.”

Sayers acknowledges that delayed payments continue to be a major headache for small business owners and can threaten a company’s ability to trade, stifle growth and, potentially, lead to insolvency. 

“It’s a tricky situation for small businesses. The Government initiative to enable small businesses to charge interest and debt recovery costs on late payments was a nice idea, but as many small business owners will tell you, the reality is often quite different,” continues Sayers.

“Often the money outstanding is from a larger business and SMEs are often wary of risking damaging their relationship with a potentially important client. Your best defence is to make yourself as efficient as possible. Compared to the national average of 72 days to receive payment, Clear Books users average only 30 days. That can mean the difference between being able to pay suppliers and employees each month or going out of business.”

Whilst he doesn’t believe there is any magic wand that SMEs can wave to address the issue of late a payment, Sayers firmly believes that efficiency is the best defence. Sayers adds:

“Within our products, for example, we offer the capability to email invoices to customers, set up automatic payment options by direct debit, and automate prompts and reminders before and after the payment due date. This takes away a lot of the traditional time consuming work of having somebody on credit control hitting the phones to try and make progress.”

Clear Books recently launched Clear Books Micro, free software that allows business owners to keep their books within a cloud-based spreadsheet. In addition, accountants are able to submit a company’s VAT, CIS and MTD returns to HMRC directly through the platform, complying with the government’s ‘Making Tax Digital’ legislation.

As data is stored securely in the cloud, business owners and their accountants are able to access their books anytime, anywhere, ending the rigmarole of accountants and their clients emailing spreadsheets back and forth. Accountants are also able to instantly raise questions and flag issues as they appear, rather than waiting until year-end.

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