With small businesses across the UK having to constantly evolve and adapt in line with government guidance and consumer demand, the past two years have been filled with challenges. While many had hoped 2022 would be a more positive year, the ever-changing macroeconomic circumstances – fuelled by the war in Ukraine – continue to create problems.
For SMEs, rising utility prices, wage inflation, and a reduction in consumer spending may all have a detrimental impact on the bottom line, making it more important than ever to ensure payments are collected as efficiently as possible, on time, every time.
An ongoing challenge
According to research undertaken by the Small Business Commissioner and Barclays Bank, 26 per cent of businesses report that late payments from customers have become more frequent as the cost of living continues to spiral. In fact, the Federation for Small Business (FSB) recently reported that 61 per cent of small firms were impacted by late payment of invoices over the first quarter of 2022, while 7 per cent experienced late payment for the first time between January and March.
This level of disruption to cashflow could have a significant impact on business performance and growth. The same FSB research found that 10 per cent believe that the amount they are owed in late payments could be used to recruit more staff, and 12 per cent said they could expand their products or service offering to grow their business.
Alongside these challenges – many of which are fuelled by wider macroeconomic instability, SMEs are struggling to secure finance from banks. The latest findings from the Small Business Index (SBI) highlight how successful finance applications have plummeted to the lowest level on record.
Just 9 per cent of small firms applied for finance in Q1, 2022, the lowest proportion since SBI records began, and out of the 1,200 survey respondents, just 19 per cent described the availability of credit as “good” – the lowest since 2016.
Nearly half (42%) of the businesses that did manage to secure finance plan to use the additional capital to manage cash flow issues, with a much smaller number planning to use the funds for equipment updates, expansion or recruitment.
Preventing late payments from becoming a critical issue
The situation is clearly challenging for businesses, and no matter the size, a backlog of late payments can create significant problems.
Without a digital payments solution in place, businesses are forced to manually process each and every payment. Not only is this resource-intensive, it’s also far more challenging to take quick action should a customer miss a payment. In most cases, a late payment involves reaching out to the customer to understand why the payment has been missed and what action needs to be taken.
Remember, this activity happens outside of the standard process, and at a time when operating costs are spiralling, recruiting new staff is simply not an option for a large number of SMEs.
With the right payments technology in place, businesses can not only offer more choice for customers around how and by what means they make payments, they can also take more robust action to prevent late payments becoming an issue.
Deploying a digital payments system will simplify processes, removing the need to manually manage databases or staff time being wasted reviewing late payments. Should a customer miss a payment, this will automatically be flagged within the system, helping ensure the issue is resolved in a timely manner.
From a consumer point of view, having a regular automated payment set-up minimises the chance of missing the payment, while also providing more certainty for the business and allowing them to reliably predict revenue streams.
Given the wider economic uncertainty, it’s important to remember that many overdue invoices or late payments are the result of a customer who can’t pay, rather than won’t pay. With a flexible digital payments solution in place, businesses can offer customers a broader range of payment options depending on their individual circumstances, as well as reducing the administrative burden associated with chasing late payments.
