Partner Article

Small business heaven – payment on time

The news this week that small businesses are the quickest to pay their bills doesn’t really come as much of a surprise to us; we recognise that cash flow is vital to us and, therefore, will likely be so to those with whom we do business. We want to be seen as positive and responsible business partners and that means paying on time – we just wish others treated us in the same way.

However, the fact that the UK’s largest businesses are improving significantly on their payment rates may come as more of a surprise to small business owners. The information, contained within new data from Experian, suggests that the average business pays its bills within 24.58 days. However, for businesses with more than 500 employees this number goes up to almost 35 days. To many of us, even payment on 35 days seems like nirvana.

Of course it is easy to simply damn larger companies for late payment. You have to recognise, though, that they could potentially have hundreds of suppliers across multiple locations and departments, so to expect them to be able to pay exactly the way a small business can, may be unrealistic.

We have written before about the inadequacy of the voluntary Prompt Payment Code and have suggested the appointment of an ombudsman with the power to challenge persistent late payers who put the survival of small businesses in jeopardy. That’s a long shot. We also know that many small businesses are reticent about leveraging interest for late payment for fear of alienating clients. However, there are things that we can do as small businesses that can have an impact on payment times.

If you post paper copies of your invoices out to clients, you might find it useful to email them a copy alongside the posted copy. The chances are your direct report will have to pass the invoice across to accounts and you are just making that process easier. I did read about one company that asks for credit card details and a signed authorisation to take payment from the card if payment is not made by other means on time. As attractive as that might sound, it doesn’t seem particularly realistic in the current climate.

Courtesy is important; ensure you develop a relationship not only with your direct report at the client company, but also with their accounts team. If you have a relationship, they will be more likely to want to help you. I read recently that the cloud accounting firm Freshbooks found that by adding ‘please’ or ‘thank you’ to an invoice, you could improve its likelihood of being paid by more than five per cent.

Incentives as opposed to penalties can also work well. Rather than use a vague term like “payment on 30 days”, try giving a specific date with an incentive attached such as “Payment reduced by x% if you pay by August 31st.

In the end, use your invoices as a way of marketing yourself to your clients, and strengthening your relationship by thanking them for prioritising your payment. If you can do that you stand a better chance of collecting payment on time.

Howard Robinson is Head of Communications at Ingenious Britain, the small business campaign designed for and around small businesses, aiming to provide support, advice and a voice to businesses that deserve to be heard.

This was posted in Bdaily's Members' News section by Ingenious Britain .