Firms advised to protect outstanding invoices and cash flow with credit insurance

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

How would half a day of lost management time per week affect your business?

Chasing invoices can be a lengthy process, and the problem is somewhat compounded in small businesses (SME’s) whom cannot fall back on a dedicated accounts department in their larger competitors. Spending, or in many cases, wasting over three hours each week chasing payment settlements can significantly affect a business’ output and restrict its cash flow, often with firms’ own bills and liabilities potentially falling behind as a result.

The Bacs research also showed that over half 53% of UK SMEs have experienced late payment problems, which is up from 45% in June 2010. The average amount owed to these businesses is now a staggering £27,000, which is paid an average of 39 days later than the agreed payment terms.

So putting this into context, if a supplying small business offers its customer a 30 day invoice settlement period (a very common length) then at present, the Bacs research indicates that UK SME’s are being made to wait and chase their outstanding invoices for a period of time in excess of an already generous length of invoice term. When the supplying firm issues the invoice and gave 30 days, how many of those firms counted on the fact that the real settlement period would be closer to 69 days and not 30?

Could your business cope if all your 30 day invoices weren’t settles until day 69?

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.

Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, commentingon the Bacs research said: “This recent research from Bacs further highlights the problems facing SMEs regarding late payments.

“It can be difficult for a company which only has a handful of employees to keep on top of outstanding invoices. This can mean important growth strategies are neglected, as time is spent on the phone or drafting letters to debtors instead.

“Ensuring cash flow is not adversely affected by late payments, a credit insurance policy offers peace of mind for growing businesses which are concerned about the impact of overdue bills.

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

At Factoring Finance, we have over 30 years of experience, an extensive UK wide broker network, and unlike the high street banks, are not tied to any one provider. The net result is that we can source the best insurance products and factoring deals through our independent network and get the deal that’s right for you, and not a banks balance sheet.

Founded in 1968, Bacs, the not-for-profit, membership-based industry body is owned by 16 of the leading banks and building societies in the UK, Europe and US. Since its inception, over 84.9 billion transactions have been debited or credited to British bank accounts via Bacs. And in 2010 almost 5.7 billion UK payments were made this way with a total value of £4.06 trillion.

For more details on how Factoring Finance can help you avoid late payment problems, cash flow difficulties, and improve your debtors book with, Invoice Finance such as Invoice Factoring & Invoice Discounting or other Commercial Finance and/or Credit Insurance, simply get in touch and we’ll do the rest.

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