Firms advised to protect issued invoices and safeguard cash flow with credit insurance

Recent research from Bacs, the organisation behind Direct Debit, has revealed that UK SMEs are losing more than 158 million man hours a year chasing late payments. This staggering amount of lost man hours equates to an average of half a day every week.

Everyone who runs a business knows that chasing invoices can be a lengthy process, particularly for small businesses which do not have a dedicated accounts department. Indeed, spending over three hours each week chasing payment settlements can obviously affect business’ output, restrict cash flow, and ultimately lead to reduced profits or with a firms’ own bills potentially becoming delayed as a direct result.

The Bacs research also showed that 53% of UK all SMEs have experienced late payment, which is up from 45% in June 2010, thereby suggesting that despite the governments Prompt Payment Code, that the problem is worsening, not getting better. Something which is perhaps glaringly obvious during a recession, with increased living and energy costs, high inflation, low business and consumer confidence and instead of support from government, savage cuts otherwise labelled as austerity measures.

The average amount owed to these businesses is £27,000 according to Bacs, which is paid an average of 39 days late after the agreed payment terms. This figure varies across sectors, with distribution companies waiting an average of 50 days for outstanding bills. The worrying element to this is that the invoice terms could be 30, 60 or 90 days in the first place, meaning that the further delay of 39 to 50 days could result in a time difference between goods out and payment in of anywhere from 69 to 140 days.

Granted the 140 day is at the high end, rarer side of the problem but nevertheless, what business wouldn’t be compromised in a 140 day delay between supplying goods and services, and getting paid for them? At best, it’s a half year lack on lost productivity but I doubt the problems end there?

Businesses wishing to minimise the risk of knock-on effects on cash flow as a result of late payments are advised to employ a credit insurance product to safeguard against delayed invoices and potential customer insolvencies.

For SMEs which are worried they are spending too much time chasing invoices, factoring may also be worth considering. A form of invoice finance, the facility has an in-built credit management provision which is ideal for smaller firms that do not have a dedicated accounts department.

If you have some questions on invoice finance or some concern about late payment problems simply get in touch with Factoring Finance for more details or a no obligation discussion.

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