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The shocking impact late payments have on productivity

The shocking impact of late payments on small businesses, their staff and their owners goes well beyond simply impinging on cash flow. It impacts people’s ability to get paid, businesses owner’s private lives, and the ability of SMEs to trade and exist.

Despite the massive negative impact of late payments on the small businesses that make up 99 per cent of the businesses in the UK and add £1.9 trillion to the GDP, late payments continue to be a major issue.

And the problem is getting worse.

Around 92 per cent of businesses surveyed by the ECA and BESA reported that their businesses have been impacted by late payment and 65 per cent were very frequently paid late.

Around 92 per cent of businesses surveyed by the ECA and BESA reported that their businesses have been impacted by late payment and 65 per cent were very frequently paid late. 

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The culture of late payments in the UK has resulted in extremely long payment terms, sometimes up to 180 days in arrears, being considered acceptable and UK businesses being allowed around £50 billion in unpaid invoices.

Given the scale of the problem, we’ll be looking at the true impact that late payments have on your business’s productivity and how Chaser can help to mitigate that impact.

The true productivity cost of late payments

The culture of persistent late payments in the UK has a number of negative effects on small and medium businesses, including:

Crippling cash flow

Every SME owner knows that cash flow is the lifeblood of their business and the liquidity issues caused by late payments can fatally interfere with that cash flow.

According to research done by Dun and Bradstreet, poor cash flow is the primary reason for around 90 per cent of SME liquidations and yet, only around 38 per cent of business invoices are paid on time.

Without consistent cash flow, SMEs are unable to pay their suppliers, cover business expenses and rent, or cover staff costs.

Even if the cash flow situation is pushing your business to the brink of bankruptcy, it can still have a massive negative impact on productivity.

In fact, the average UK SME has had to turn away an average of £26,000 in work simply because of the liquidity issues caused by late payments.

"the average UK SME has had to turn away an average of £26,000 in work simply because of the liquidity issues caused by late payments."

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Increased stress

The personal impact of late payments should not be underestimated, and the mental health of SME owners is often a hidden casualty of the culture of late payments.

There is a well-documented link between stress and a loss of productivity.

Around 75 per cent of UK business owners report being unable to sleep due to unpaid invoices and 22 per cent start chasing invoices as soon as they wake up.

In fact, late payments are the primary cause of SME owners losing private time with their friends and family.

Around 56 per cent of all time spent chasing for payments occurs outside of the working day, which is why only 15 per cent of small business owners feel that they spend sufficient time with friends and family.

Given the scale of the issue and its impact on all aspects of their lives, it isn’t surprising that 26 per cent of SME owners reported that their physical and mental health has suffered because of late payments.

The costs of chasing late invoices

The cost of being paid late isn’t restricted to just the monies owed. It also encompasses the cost that SMEs incur while chasing those outstanding invoices.

According to a study by Xero, businesses in the nation’s business capital, London, spend 1.5 full days per month just chasing late invoices.

In fact, the average UK SME is wasting 30 per cent of their time pursuing an average of five outstanding invoices at any given point.

The staff and administration costs associated with chasing late payments add up to £550 per month or around £6.3 billion per year being paid by SMEs just chasing money they are already owed.

Interest costs

Since they are not being paid on time, it is unsurprising that many small businesses have to turn to finance to cover their costs while waiting for their outstanding invoices to be actioned.

Around 10 per cent of SMEs have had to resort to invoice financing just to be able to pay their staff and bills. Of course, with finance comes interest.

In fact, If your company makes around £10 million per year, just a three-day delay in an invoice being paid can see you accrue around £115,000 in interest charges.

Reduced growth opportunities

The most successful companies are those that are constantly looking for growth opportunities. Poor cash flow due to late invoices can choke off those growth opportunities, leading your business to stagnate.

In fact, a recent study of more than 500 small businesses found that 30 per cent were forced to use funds earmarked for growing the business to chase overdue invoices instead.

"a recent study of more than 500 small businesses found that 30 per cent were forced to use funds earmarked for growing the business to chase overdue invoices instead."

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Increased staffing cost

Chasing late invoices is an effort-intensive and time-consuming process which pulls staff away from other, more productive tasks and, in the worst cases, requires businesses to hire new staff simply to chase money they’ve already earned.

How can Chaser help you offset the cost of late payments?

As a thought leader in the accounts receivable space and one of the leading platforms that helps SMEs implement excellent credit control, Chaser offers a number of material benefits that can help you get paid faster and offset the cost of late payments.

Automation, with the human touch

As we’ve mentioned, chasing late payments and outstanding invoices is labour and time-intensive. That labour comes with staffing costs.

Chaser users are able to reduce their times spent chasing outstanding invoices but up to 15-hours per week by taking advantage of our innovative automated reminders.

Our platform sends your customer a heads up on upcoming invoices, and then periodically reminds them if an invoice remains outstanding.

These reminders are fully customizable to reflect your brand voice and the relationship you have with your customer. All emails appear to be coming from your private email address and our system will automatically send a thank you message, once payment has been made. 

By using Chaser, you get all the time-saving benefits of automating your credit control process, which gets you paid 16-days faster on average, while still building your business relationships with that personal touch.

Payment Portals

The best way to get paid on time is to offer your clients the widest number of options to pay you.

Every one of our invoice reminders contains a link to a unique Payment Portal that contains all of their invoicing and payment information for all of their paid and outstanding invoices. This encourages your clients to pay the entirety of their outstanding payments at one time.

The Payment Portal available in Chaser’s credit control software also includes a wide range of payment options to give your clients the greatest number of opportunities to make a timely payment.

"The Payment Portal available in Chaser’s credit control software also includes a wide range of payment options to give your clients the greatest number of opportunities to make a timely payment."

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Because the link to the payment portal is included in every one of the invoice reminders, this reduces the amount of time you or your staff have to spend sending repeat invoices while chasing payments.

Outsourced credit control

Given the massive negative impact of late payments, outsourcing your credit control to our dedicated team of trained professionals can have significant benefits.

For just a small monthly cost, you can have a professional credit control specialist working for your business.

Not only is this far less economical than hiring in-house, which costs an average of £22,000 - £30,000 a year, it is also around half the cost of the £500 per month the average SME spends chasing outstanding invoices

By outsourcing your credit control to our dedicated team, you’ll significantly reduce the amount of time wasted on chasing money you’ve already earned.

You will also be able to free up staff from chasing late payments to focus on growth and, if you’re a business owner, reduce the amount of stress on yourself, improving your own productivity.

Chaser helps mitigate the cost of late payments

As a signatory of the Prompt Payment Code Chaser is committed to changing the culture of late payment that is so prevalent in the UK and easing its shocking impact on UK businesses.

By taking advantage of the many benefits of using Chaser, including our professional outsourced credit team, our Payment Portals, and our innovative and time-saving automation options, our users are able to get paid 16-days faster on average and reduce their overall Days Sales Outstanding by as much as 25 per cent.

 

To understand how Chaser can help your business get paid faster and more often, book a demo with us today.

Topics:
Credit Control
payment portal
Outsourced Credit Control
Outsourced accounts receivables