Make a PACT to recoup your late payments
Small businesses are the engine that keeps the economy moving. They’re responsible for 60% of private sector employment and 47% of private sector turnover across the country, as well as comprising 99.3% of all private sector businesses.
But small businesses run an additional risk in bringing their innovative ideas into reality: their cash-flow is disproportionately affected by late invoice payments. So what are the issues and what can small business owners do about it?
Late payments negatively affect 60% of small businesses
When it comes to pure legal clout, small businesses are often short-changed. The complicated and costly process of recouping payments through arbitration or small claims courts puts many small businesses off from claiming what is rightfully theirs.
According to a study by BACs in 2015, the total sum of late payments owed to small businesses now stands at £32.4billion – equivalent to an average of £30,000 per registered small business in the UK. Six in 10 companies have felt the negative effects of these circumstances, at an average cost of £677pcm.
How can small businesses fight back?
Chris Hawthorn was one such business owner, but when the payment deficit spiraled and his business went under, he decided to turn his entrepreneurial acumen towards helping others in the same boat.
“I was forced to invest personal savings into the business, which damaged relationships with my own suppliers by paying them late. Not having the necessary finances in place also resulted in lost productivity through time spent chasing unpaid invoices. Ultimately, this resulted in the business failing.
“It’s unforgivable that British businesses on average are owed £31,901. This could stop entrepreneurs being able to add an additional employee to the company, pay their overheads or make payments on existing loans.”
His answer was to set up the PACT (Please Abide by Contract Terms) scheme, which holds those who pay late to account. Subscribers to the scheme get access to resources ranging in impact, including:
- List of terms for customers
- PACT logo for invoices
- Pre-agreed procedures in the event of non-payment
- Automated emails to the debtor
- Credit agency default notifications
- Access to name and shame on defaulter.com
Defaulter.com is an online register founded by PACT, which allows small businesses to check whether companies have a history of late payment and how any small claims cases were settled. The overall aim is to make businesses know that if they don’t settle up on time, there will be “genuine repercussions” that will hit the place it hurts most – their wallets.
Chris Hawthorn comments: “Partnerships are also in place with leading credit reference agencies to ensure late payers feel the repercussions directly through a drop in their credit score. I believe with these consequences in place, it won’t be long before late payment becomes a thing of the past.”
Mediation should still be the first port of call for late payments, however, these steps could help to recoup debts whilst still maintaining a relationship with customers.
How can I keep track of scheduled invoice payments?
For many small businesses, it’s not possible to dedicate extensive resources to accounting on a daily basis. However, with advanced accounting software such as Xero, you can keep track of payments and dispatch invoices automatically. Best of all, your accountant can get access to your cash flow overview in real-time, enabling them to provide expert advice that will help your business to continue developing.
To find out more about how to accurately monitor your cash flow, call on the experts at 3 Wise Bears today.
