Even though there are hundreds of different opportunities to set up businesses today than a few decades ago, it’s still not easy to keep them afloat. Late payments are one of the biggest problems that small business owners are facing.
It takes a lot for people to take the plunge and start a business. You put your heart and soul into it only to realise that the biggest problem you’re going to face won’t even have anything to do with you!
Getting payments from other people can be extremely difficult. It turns out, one of the biggest reasons small businesses close down is because they face cash flow problems because their clients don’t clear their payments anywhere near the date they were supposed to pay on!
The survival of small businesses rests almost entirely on the question of “Will we get paid this month?”
Late payments don’t just affect the business side of things. Small business owners have to deal with insane amounts of stress while chasing payments. Many of them end up with their mental health in turmoil because of the pressure they get from late payments alone!
A report by “Xero”, an online accountancy platform, showed that more than 50,000 small businesses close down every year because of the effects of late payments on cash flow. Most of these businesses are very small, and some are even run entirely by the owners themselves!
The report also showed that almost half of the invoices that the small businesses sent out were paid later than the date they were due on. 76% of the owners even said that it affects how they feel about running the business, saying that if the payments weren’t such a massive problem, they’d feel like the company was a lot more worth it.
Older, Bigger Businesses control everything.
When you’re entering a negotiation of terms with a business that’s been around longer than you have and are bigger than yours, they hold all the cards.
They have significantly more power and usually tend to play the “You need me more than I need you” card.
When this happens, you as a small business owner might find yourself backed up into a corner with no option but to agree to their terms and just wait aimlessly for your payments.
This power imbalance would lead you to a place where you feel like you can’t risk it by asking for your payments; you might not see things working out if you demanded better terms for yourself. All this does is protect no one.
Not you, not the people dependent on you.
You’ll have no choice but to delay the payments that you owe to your suppliers, messing up their cash flow along with yours. They might also find themselves in a place where they’re unable to pay their suppliers, and in turn, they would delay their payments.
That puts you right in the middle of the late payment culture as well.
All of this creates a culture where businesses don’t get to grow.
When you aren’t getting your payments consistently, you can’t plan for the near or distant future. The natural evolving process of businesses gets hit with roadblocks. In a market like this, small businesses either stay as little as they are, or continue to get smaller because of the debt they’re under.
While big businesses continue to take advantage of them and get bigger with time, the disparity is enormous!
In the UK alone, 96% of the businesses are those that have less than ten employees. The owners of these businesses are defenceless against “supply chain bullying”.
Alastair Hutchison – the policy development manager at the Association of Independent Professionals and the Self-Employed. Says that small business owners “don’t have the same legal and administrative support that even a small or medium-sized enterprise might have, so they find it hard to enforce their rights.”
Adding that “Your relationship with your client is paramount when you’re operating on your own, and you don’t want to put that at risk by chasing invoices.”
Small business owners end up losing a lot of time merely chasing payments. Time is money, the longer you end up having to spend on chasing unpaid invoices, the longer you end up deferring time and attention from the tasks you may have at hand.
The issue is that you might not even have the resources to sue the other party! Since you won’t have a dedicated legal team, hiring a lawyer will be an added expense, one that will probably be a lot more than the initial invoice itself!
Is there anything that small businesses can do to protect themselves?
Use The Law:
In most of the world, the legislation sets out a maximum payment limit. Of course, there are exceptions and your contracts can be set up differently, but generally, payments are to be cleared within 30-60 business days.
If this date passes, you’re entitled to charge a “late fee” or compensation on the late invoice. Most business owners don’t do this because they either don’t know about the law or are simply too scared to get future projects. Because of this, they dig themselves into a deeper hole of debt!
Being this unsure of payments might lead you to walk away from opportunities just because you’re scared whether you’ll end up getting your amount or not. If you’re too scared by working on credit and getting cheated might even cut down the pool of work you can get because most clients would probably want you to work on short term credit.
That can’t happen. You need to be able to take action, even if you think that you’re “too small” to take action, you aren’t. The money you worked for is rightfully yours! Even if you don’t want to take the legal route, you can still do something about it!
Report them on a late payments directory:
Late payment directories, like brodmin.com, are made explicitly for reporting businesses that make their payments late. There, you can send in a report that has all the details about your specific case.
You can add all the details about your interactions, the project and the deadlines, them deferring your payments, everything you think should be in there, and they’ll publish your report after reviewing it.
The report is available for the public to view; anyone who searches your client’s name on the directory will be able to see that they don’t make their payments on time. This will make any of their potential clients think twice before working with them, deterring their business.
Your clients are more likely to pay you if they think you can hurt their business. They may reach out to you and agree to pay their invoice in exchange for you taking down the report. You can choose to take it down or edit it at any point, and it’s totally up to you!
The report’s primary purpose is to highlight the issue, whether you choose to make the payment or not, or take down the report or not, is all your choice. Either way, this is an effective way of dealing with things if they seem to get out of hand.
Although late payments have the potential of ruining your business, there are always things that you can do to try to get paid other than just asking them to clear the invoices several times. Send them the late fees, report them if they don’t pay up.
Leave behind the fear of not getting more work from them, and if they don’t clear your invoices when you initially start working with them, it’s unlikely that they’ll magically start respecting your business and pay you on time later on. Cut your losses and move on to better clients, there are plenty of them out there, you just have to make an effort to protect yourself and don’t lose hope until you find them!