If there’s one thing that unites virtually all SME business owners, it’s the scourge of late payments. This is always a problem, especially for those operating on narrow margins, but the pandemic seems to have turned it into a crisis.
The Scourge of Late Payments
The great majority of SMEs don’t enjoy the huge cash reserves and almost unlimited credit enjoyed by the giant companies. If they’re lucky, they may have enough to cover a few months without income, but many of the smaller ones don’t even have that much.
This makes reliable cashflow vital. SMEs need to be able to rely on the money they’re expecting to come in, otherwise they won’t have the funds to invest or expand. At worst, they might not even be able to survive.
Late Payments in the Pandemic
Research last year by Intuit QuickBooks suggests that that 21% of SME consider late payments now to be at their worst level since the pandemic began. This could have disastrous consequences, since nearly two thirds see a risk of their business failing.
Of course, businesses that aren’t receiving money due to them are more likely to be late payers themselves. As Chris Evans, Vice President and UK Country Manager at Intuit QuickBooks, puts it, “At a time when SMEs depend on getting paid on time more than ever, businesses both big and small are being forced to delay payments due to financial challenges.”
The same research indicated that the proportion of money owed to SMEs that’s overdue has risen from 5-10% last year to 30% by July. More than half of SMEs report having experienced late payments since the pandemic began.
It’s interesting, however, that the situation appears to improve the smaller the business — from 72% of “medium” businesses down to 26% of sole proprietors. Perhaps this suggests that the smallest businesses may be in a better shape than larger SMEs.
The Time Factor
Despite the better figures, however, smaller businesses have a big disadvantage over larger SMEs. A medium business with more than two hundred employees may well have a dedicated credit control department — even if it’s a department of one.
If you’re a sole proprietor or an owner of a micro business, on the other hand, you’ll probably end up being the one chasing payments. This means that the more late payments there are, the more time you’re wasting that should be dedicated to driving and expanding your business.
So, what can you do to make sure you don’t get hit too badly by late payments? Well, perhaps the most valuable thing would be to automate your credit control system, so that you can chase overdue payments without it taking up too much of your valuable time. And, of course, give me a call if you have any badly overdue payments that need to be chased up.