How to Run a Profitable Business in One Easy Lesson

Thousands of business owners run unprofitable, profitable companies! They are successful in creating products, improving sales, attracting new customers, controlling costs only to fall at the last hurdle – getting paid. In this blog, we’ll talk about whether it really is that important to get paid on time. Simply take a minute to read the 9 key facts and then work out number 10.

• 52% of invoices in the UK are paid late
• On average, at any given time an SME is waiting on nine outstanding payments
• Days beyond terms in the UK, prior to Covid, stood at 37 days and have worsened considerably
• 11% of these outstanding payments are more than 200 days late.
• The FSB state that 30% of SMEs have needed to use an overdraft to cover their costs with over 37% of small businesses having cash flow problems
• 26% of SMEs say that late payment affects their ability to pay suppliers and adversely impacts on their credit rating
• 1 in 5 insolvencies are attributable to late payments
• An estimated 50,000 businesses could be kept alive each year if all payments were made on time
• Large companies tend to take 30% more time than small companies to pay invoices
• The easy lesson
  • Take the average number of invoices you have that go beyond your payment terms (e.g. 9)
  • Work out the average invoice amount then multiply a x b (e.g. £6000 x 9 =£54,000 overdue)
  • Work out your average days overdue (e.g. 37)
  • Check your EAR* with your bank (typically 13-15%) EAR/365 = daily interest rate (e.g. 0.004%)
  • Multiply a x b x c x d = interest
  • Add bank charges
  • = scary number probably around £1000 per month

What if any of your numbers are worse than the averages shown above?

Late payments have devastating knock-on effects; cash flow is impacted, operating costs increase, they may reduce your ability to take on new customers, and your risk and credit scores can be damaged. You may also not be able to afford to reward your staff, so you are in danger of losing key employees.

As a busy owner you have a difficult balancing act, managing your business profitably whilst maintaining good relationships with your clients, suppliers and partners. But that doesn’t mean you have to accept bad payment practices that place your business in jeopardy! And we guess you can do without the stress.

Two Barriers to better cashflow

The two major problems surrounding chasing late payments are:

• the amount of time (and cost) it takes to recover the money and
• the fear that you will damage relationships chasing the outstanding payments.

No business owner would consider running manual accounts or even refuse to use labour saving software and communication tools yet many still have outdated credit control processes. Properly designed, practical software can streamline, and even automate, the tasks needed to speed up the payment process. Offering significant savings in both time and money.

But when the software also allows you to tailor your communication with individual customers, helps you to manage, and better resolve, disputed invoices and offers easy ways pay, then not only are you benefitting from more effective processes but you are maintaining, if not improving the relationship with the customer.