Tackling late payments in your business

Posted by Derek Mason

24th October 2023

Picture credit: Scott Graham on Unsplash

Tougher measures from the government will aim to tackle the issue of late payments for small businesses, but I’d argue that putting in place your own procedures to protect your business is likely to have more of an impact on your business cashflow.

New measures included in the Prompt Payment & Cash Flow Review aim to reduce the amount owed to Small and Medium-sized Enterprises (SMEs). With SMEs making up 99.9% of the 5.5 million privately-owned businesses in the UK (figures from 2022), and with those businesses being owed an average of £22,000 in late payments, it makes sense to tackle this.

The newly announced measures include:

  • Extending the Reporting on Payment Practices and Performance Regulations 2017, with new metrics for reporting, so businesses and industry commentators can see the value of invoices, late payments and disputed invoices. Reporting on retention payments for businesses in the construction sector is also being introduced.
  • Giving advice to small businesses on how to negotiate better payment terms, along with advice on going digital.
  • Introducing broader powers and responsibilities to the Small Business Commissioner to take on investigations and publish reports when needed, after receiving anonymous tip-offs or intelligence.

The ethos behind these measures aims to improve the payment culture in the UK and support small businesses in having more reliable cash flow. Clearly, late payments have knock on effects on business, as it’s harder for businesses to invest when they are owed large sums.

The measures are positive, but SMEs can also take responsibility for putting in place their own policies and procedures to prevent late payments. This can be more difficult when working with larger organisations, and it depends on the work you’re doing, but one policy that can be effective is to withhold a portion of your work until payment has been received.

For example, if you’re providing plans, drawings or a report, make sure you receive the final payment before you send this work to your client. If you make that a blanket policy, the client cannot take it personally, and it means you are less likely to be stung by a client who takes a long time to pay or doesn’t pay at all.

Having a clear process for regularly chasing payments also sends the message that you won’t be letting this lie and your client needs to pay. It’s always more effective to chase a late payment sooner rather than later, and to have a strongly worded, legal-sounding letter up your sleeve to encourage a resistant late payer to finally settle their invoice.

It’s good that the government advice is there for those who need it, but advice from a fellow business owner who’s been running a successful business for many years may be more valuable!

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