Blink and you can miss a telling statistic. In this case, it’s a figure published by Sage Pay in January. The payment service provider found that small and medium sized enterprises in the UK are owed more than £55 billion in unpaid or outstanding invoices.
That’s a truly shock statistic alongside the finding that 67% of SMEs use paper invoices and spend the equivalent of two weeks a year chasing unpaid invoices.
For one in 10 companies, a third of invoices are paid late. Now, you may think that I’d be quite happy with that, because it means more work for debt collectors.
But that’s not the point. I’m as happy to advice on credit management as to chase around for unpaid invoices.
Sage Pay’s chief executive, Simon Black, blames antiquated paper and post systems for the problem that he rightly says is ‘depriving small and medium businesses of critical revenue’.
While Natalie Barron of Commercial & Domestic Investigations, in a press release I’ve just come across this week from a firm with 20,000 business customers, advises investing in professional credit checking to screen the financial health of customers before starting work with them.
She has a point. Proper checks can provide a snapshot of clients’ finances, help identify slow payers and prevent disputes.
All business should know that cash flow problems can send you under if they are not managed.
Says Natalie Barron: “It’s easy to get carried away when you get a new business opportunity through the door and sign a new customer or client up straight away, without looking into their financial history and checking out whether they’re ‘good for the money’.
‘More businesses are asking for payment upfront in times of economic insecurity to counter this – however, as you can imagine this request if often declined as people want to see the quality of the work before they pay. If you can come to an agreement of a deposit of some sort, perhaps half upfront, then that would be beneficial.’
‘Get a contract in writing’
Equally, it’s advisable not is to delay payments to your own suppliers because customers haven’t paid up. Though think twice before using your credit card to cover the bills, given the interest rates they charge.
We’ve said it before here, but Natalie Barron gives a timely reminder about contracts. ‘Always, always, get a contract signed or something in writing before you start work, to protect you legally.’
Credit checks are worthwhile before you start work for a new customer, though it’s worth noting that in the current financial climate there are perfectly sound businesses and people with bad credit reports.
Still, as Natalie Barron wisely suggests: ‘Find out their payment history; have they run into difficulty before, are they in the red, have they any court orders against them? These are all signs to stay clear.’
Think of credit checking as a form of preventative health. It enables you to make an informed decision about who to work with.
SJ Collections has long experience of helping companies grapple with credit management. And if you have a growing pile of unpaid invoices, don’t hesitate to get in touch.