How to survive long payment terms as your business grows
Many Small and Mid-Corporates across the globe continue to struggle with late payments for invoices that are due in 30 days. Unfortunately, the problem is even bigger for many companies where the terms of payments stretch for up to three months.
The ‘knock-on’ effect of long payment terms can be catastrophic for businesses even when there is no delay in settlement – particularly fast-growing firms.
It’s the ultimate paradox.
A company risks failure because they are scaling quickly and can’t get the working capital they need to pay for the things that will catapult them to the next stage of success. This includes anything from renting bigger warehouses to store an increased demand in goods, to hiring new employees and paying utility bills.
Figures from the UK Office for National Statistics, reveal that 40% (2m) of the UK’s growing businesses have less than three months’ worth of working capital left to support their day-to-day operations. About 10% (200k) of those 2m – are in “serious trouble”, and another 300,000 “have only got weeks left”.
Companies are also crippled by astronomical costs, with factory input prices increasing by 18.6% in 2022. A record high. Many businesses are increasing their prices to mitigate the hit, but this creates inflationary pressures across many industries. Sadly, this is a problem that transcends the globe. SMEs (Small and Mid-size Enterprise) around the world are struggling.
Cash is king – but where is the money when you need it?
SMEs can spend weeks chasing late invoices and endless hours anxiously waiting out their 90-day terms of payment. This isn’t a constructive use of time – and constant worrying won’t solve the liquidity crunch.
So, what can companies do to avoid late and longer-term payment terms to prevent financial defeat and grow their business?
Here’s Our Five Top Tips:
- Invoice financing: Many SMEs use Invoice Financing from the start as this solution ensures a steady flow of much needed working capital. At Accelerated Payments, SMEs receive cashflow in as little as 24 hours of approval. Giving peace of mind to companies as they always have liquidity to keep their business running. In addition to the major cash issues they cause, late payments also waste valuable time and resources within a company as businesses have to chase the money that is due to them. Mitigating the problem from the start can free companies from this headache and give SMEs the peace of mind they need to focus on what they should be doing – getting on with business.
- Outside of this, SMEs can also ask for payment of a percentage of the invoice up front. This will ensure that businesses have some level of funds in the bank to help fill the funding gaps when there’s a sudden financial hit in the business.
- SMEs can also be proactive by running a credit check on clients and suppliers to see if they have a history of late payments.
- Track receivables so you can spot late payments. Follow up with the client / customer immediately to speed up settlement.
- Send reminder letters as soon as payments are late. If you don’t have the time – invest in software that does it for you. Call the client too – the human touch can be highly effective.
- Set up an instalment payment plan if the client is having difficulties due to a cash shortage. This can help them overcome their own financial difficulties and manage the payment process more effectively.
If you are Small or Mid-sized entity experiencing working capital issues due to long payment terms, we can help. Here at Accelerated Payments, we make it easy to get invoices paid faster.
Our solution keeps you in control. You select the invoices that need acceleration, and we’ll do the rest. No fuss. No complicated fees. No security required.
Whether trading domestically or internationally, get in touch today.
