The unbelievable impact that late payments have on productivity
Posted on 23rd September 2021 at 08:49
So many businesses struggle or even go under due to cash flow issues. What’s more, is that, said issues with cash flow, are often due as a direct result of late payments.
Late payments might not seem like such a big deal, but when you have enough of them, this can impact so much more than cash flow. It can negatively impact your ability to pay your staff, it can threaten the future of your business, and it can extend beyond your work and cause financial stress in your private life too.
Unpaid invoices cause so much havoc that you may not be aware of. To help you mitigate the damage, here is the impact that late payments can have on your business’s productivity.
Crippling cash flow
The main impact of late payments is obviously on cash flow. Without consistent cash flow, SMEs are unable to pay their staff, their expenses or their suppliers. As you can imagine, this puts a massive amount of strain on every area of the business.
75% of UK business owners report not being able to sleep due to unpaid invoices and 22% start chasing as soon as they wake up. While the personal impact may not seem like such a problem, this does extend to the business. Business owners who are spending 56% of their time outside of the working day, chasing unpaid invoices…they are going to be far less productive during working hours.
The average UK SME is wasting 30% of their time chasing approximately 5 outstanding invoices at any given point. This means that the true cost of late payments isn’t just ‘monies owed,’ it’s monies owed plus costs incurred while chasing payments.
With inconsistent cash flows, many small business owners have to result to finance to cover their costs. If they don’t, they may not be able to pay their bills or their staff. As with any loan, financing comes with interest, and interest charges can be expensive. Imagine how much money you’re losing on a per-job basis just because of late payments.
Increased staffing costs
Studies have shown that businesses in London spend 1.5 full days on average per month just chasing late invoices. It’s no surprise then that many choose to hire new staff simply to spend this time chasing the money they have already earned.
Rather than resort to financing and suffer the high-interest charges, many businesses opt to use funds that they’ve put aside for growing the business. A recent study showed that 30% of small businesses opted to do this.
While it may seem like a better option to take over financing, this can lead to reduced growth opportunities. And without growth or adaptation, businesses stagnate.
Focus on how you can minimise the impact of late payments on your business
Hopefully, now you can see the true cost that late payments can have on your business. It’s scary, isn’t it? To mitigate this impact:
Invest in practice management software and automate your invoicing process as much as possible.
Offer your clients as many payment options as possible.
Outsource your invoicing and credit control to a financial professional.
If you do these, you can almost eliminate the impact of late payments on your business and start growing with confidence.
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