On the surface, late payments don’t seem like too much of an issue. As long as the money ends up in your account eventually, there’s no problem, right?
Well, no. A consistent and predictable monthly cash flow is crucial to your business. It just so happens that small businesses are the ones hit harder by late payers. For many, important business decisions, like hiring an engineer, investing in new equipment, and even taking a much-needed holiday, all depend on how much cash enters the bank at the end of each month.
If you sit on a swathe of unpaid invoices, you might find yourself suddenly unable to afford something your business really needs. If you’re not careful, this can spiral and seriously hurt your business.
How frequent are late payments?
In one recent month, just over 80,000 invoices were sent out by heating and plumbing companies using our software. Even when allowing for a two week payment period, only about 43,000 were paid in full – leaving businesses waiting on roughly 46% of invoices. This is in line with figures gathered by other companies, such as Due.
While it’s true that the majority of these were eventually paid in the following weeks, the numbers are troubling. Small businesses in the UK are owed £32.1 billion in late payments, according to Simply Business’ SME Insights Report, and, together with the cost of living crisis, this helps show the real world issues trades businesses are facing.
How late payments hurt your business
Late payments are one of the biggest causes of stress and cash flow problems for businesses. In fact, up to 25% of business owners say they haven’t been able to take a holiday in the past couple of years because of money tied up in unpaid invoices, according to research from Barclays.
On top of this, an unreliable or limited cash flow caused by late payments can mean you have to backtrack on plans such as hiring new employees and investing in new equipment. And there’s also the time wasted chasing up late paying customers.
Why do some customers take so long to pay?
We believe this stems from the problems surrounding common payment methods.
Cash or cheques are becoming less common for two reasons. Firstly, they’re troublesome to deposit in the bank. Secondly, most customers don’t carry enough cash or even have a chequebook anymore to pay on the spot.
You could offer customers the option of card payments, but they typically come with fees of 1-3%, which rack up in the long run.
Bank transfers then seem like the logical choice: money is sent straight to your account and there are no fees. But they’re also the most time-consuming option for your customer. They have to find your bank details, log into online banking, and make the transfer. It is rarely done on the spot, and then simply forgotten about.
Every trades business experiences the pains of late payments. But few consider it as something they have any control over.
We believe it should never be chalked up to a fact of doing business. Fortunately, there is a new and innovative way of accepting payments that encourages fast payments and ultimately makes running your business a less stressful experience.
Open banking and instant QR code payments
QR codes are nothing new, but they’ve been steadily creeping their way into our daily lives on restaurant menus, adverts, and many other places. Now, open banking companies (regulated financial service providers that aren’t your high-street banks) are using them to create simple and fast payment systems.
They solve the only problem of bank transfers in that the customer has to go out of their way to make the payment. By quickly and easily generating a QR code on your mobile phone, all your customer has to do is scan it and confirm the payment. Money is sent directly to your account, and everything else is done for them.
There’s no need for your customers to log into internet banking, manually type in the amount, and check they’ve entered your details correctly. The code can even be placed directly on the invoice to keep things organised and in one place.
At your end, it’s just as simple. You get paid quicker, fees are dramatically reduced, and there’s no need to physically deposit money into the bank.
Trades businesses have always been plagued by late payments. Even with advancements in mobile banking and card payments, it seemed as though every method came with its own set of problems.
Open banking companies are now using QR codes to help facilitate quick and easy payments. This system is ideal for trades businesses who want to start getting paid on time and without hassle.
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