Whichever measure you use, SMEs in the UK are owed a lot of money in outstanding invoices.
The UK Government will tell you it’s close to £25bn. Barclays Bank say nearly 60% of SMEs are owed money. Others boggle the mind with stats like 900,000 hours being wasted chasing bills, with the average being around £8,500 (City AM). The more you research the more you see the scale of the problem. Thinking about some Hascombes’ clients reminds me that in one extreme example a business was owed the equivalent to 50% of their annual turnover in unpaid invoices. This particular contracting had a turnover just under £1m, with the average invoice under £5-7.5k. It was a weekly dance with insolvency and whilst this is an extreme example, with a turnover nearly double that now, the outstanding debt ratio would have meant certain collapse of the business. The stress on individuals and owner was unbelievable – but it was also totally avoidable. Happily we’ve remedied this problem with a permanent solution.
What’s the problem?
We’ve been on the receiving end of both creditors and debtors. We’ve chased suppliers to provide us with invoices and account statements to ensure we are up to date, only to be told it will happen ‘on the next run’ (presumably when end of month accounts are produced or when the accounts person returns to the office) or they simply don’t engage and don’t issue one for weeks or months. On the other hand, we’ve spent hours on the phone and writing letters to get what was owning to us. We've deployed a number of tactics to get what was rightfully ours or owed to our client's.
Some businesses simply do not have the right system in place, and when I say system, I don’t mean fancy accounting software like Sage, Quickbooks or Xero, I mean the basics of proper clear invoices that anybody can produce on Word. Then there’s the setting of adequate time to follow up outstanding invoices. This isn’t necessarily about time management (we hear a lot about this). It’s about prioritisation. Why would you work for free? Why would you let people not pay you for the hard work and effort/ product you’ve supplied them? Why oh why would you continue to work for the same people when they don’t have the courtesy or inclination to meet their obligations? Without income and cashflow, your business is likely to be on the redline of meeting its own financial commitments.
Of course, living in the real world there are all sorts of reasons why people don’t get their 7 or 14 day invoice payment. There are inevitably going to be occasions things are not working as well as they should or people don’t have their own sufficient accounting system in place. There are however a few things you can do:
1.Prioritise your invoicing. There are few things as important as getting money into your business and therefore you have to set aside a time to review, follow-up and act on outstanding invoices – even if you have to get somebody in to do it for you on a temporary basis. Don’t just email – phone, write and if needs be, visit.
2. Don’t rely on the ‘accounts’ email. In the likely event you are directed to issue invoices in this manner, make the problem of not getting paid another person’s problem. Speak to your contact at the company. Speak to their boss. Speak to whoever you need to put internal pressure on the person not issuing your payment. Don't repeatedly email the same email address expecting a response if they haven't been forthcoming with a reply.
3. Avoid the myriad of companies offering to take on your burden of chasing debt and charging you for the privilege. This is not a long term solution so whatever the issue is, fix it now so you don’t have to rely on this sort of service.
4. Use statutory instruments such as late payment act (commercial debt only). You have the right to request interest (currently 8% above BoE rate) so perhaps remind any serial late or particularly slow payers of this. Be polite. Don’t threaten (this can come later if necessary).
5. If it’s really bad, check your business insurance to see what options are available. Under certain amounts you may get a cash settlement from the insurer – and the ability to chase the bill thereafter and keep any monies recovered – or they may issue a letter on your behalf to get the debt recovered at not cost to you. I wouldn’t recommend defaulting to this position but it could be available to you.
6. Keep ahead of the money. Where you can, agree fees and deposits upfront and set draw-downs when milestones are reached – set this out in your initial proposal. Even better, get commitment to a monthly rolling payment (great if you're a consultant). You’ll have to keep your own house in order regarding hours or deliverables being met and being able to prove it but this is not reason not to ask or do it.
7. Sounds a little perverse, perhaps but have some fun with it. I am not entirely sure why people don’t like talking about money or invoicing, but turn it into a challenge. Motivate yourself by setting a target amount or number to recover. Be polite, but firm. You are not powerless. Document everything and keep things factual.
I cannot stress enough the importance of getting paid. All too often companies bemoan a lack of sales or income but fail to address the problem of monies owing to them from work already done. Setting the scene and parameters at the beginning of the working relationship certainly helps, but when it’s missed or forgotten, don’t be bullied by late payers.
What’s your debtor’s list looking like?
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