Along with the threat of a renewed spike in COVID-19 cases and continued lockdown regulations, small businesses are already struggling to keep their head above water.
Xero Small Business Insights show that in September, small business revenues were 9.2% below September 2019 levels. Heading into the pandemic crisis in February small businesses had to wait an average of 30.9 days to be paid. But this rose to a peak of 37.5 days in May. Since then average payment times have gradually fallen and were 32.0 days in September. This adjustment is welcome, however, payment times still remain 1.1 days above February levels.
Here’s how you can ensure that you get paid on time to safeguard your business:
Set the terms
When creating contracts for your clients, it’s important to check what payment terms you have agreed to with your own suppliers. For example, you don’t want to agree to pay an invoice within 30 days if you’ve agreed on a 60-day payment period with your own clients.
It’s also good to set terms based on what you know about your clients. If you have a repeat late payment offender on your books, you’re entitled to shorten your payment period to a fortnight or even a week (in fact, more than a third of businesses now request payment within a week).
Make it easy
If you make your payment terms easy, you’re more likely to be paid on time. Variety is the spice of life, so offer your clients a range of ways to pay, including processing card payments over the phone, in-person and online. Our research shows you’ll get paid 20 days sooner if you offer credit card or an automated clearing house (like PayPal).
You also need to make sure that your invoice has all the information your client needs to make the payment, including a description of the work done, the date you did the work and any other requirements from the client. If you don’t cover all bases, you’re at risk of not getting paid – you don’t want to give them any reason for paying late.
The fact of the matter is that the sooner you invoice, the sooner you can get paid. Clients will often wait to the due date to pay, so invoice everything promptly – ideally, as soon as the job is done. They’ll be more receptive to paying when they’ve just received the goods or services that you delivered, so capitalise on this goodwill. An efficient and regular invoicing process to keep track of expenses and what you’re owed in real-time will help you avoid late payments.
It’s easier to ask for payment (and chase it) if you know who is in the accounts department. It also means that they’ll see you as a real person, rather than a name in their inbox or on the top of an invoice.
If you can build this relationship, you’ll find it easier to send polite reminders about payment. Alternatively, accounting software like Xero can send automated invoice reminders so you don’t have to.
Investing in accounting software can help to take the hassle out of keeping on top of your finances by automating most of your time-consuming manual processes with increased accuracy.
While the UK’s small business sector has certainly seen rosier days, they can still prepare for this uncertain period by adopting the right tools and following expert advice. For starters, the government’s ‘Get Ready for Brexit Checker’ will offer more specific next steps depending on your business. You can also sign up for the government’s Brexit update newsletters. Enterprise Nation and The Federation for Small Business both have helpful Brexit resources. Keep on top of changes that will impact small businesses through our Brexit Hub.
Accountants too, will be much more familiar with changes and developments in legislation. Having one on your side will free up your time to focus on the business itself, with greater confidence and resilience.
Visit our dedicated Brexit Hub for more advice.