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15.10.2018

Funding a growth mindset

Research suggests that SMEs in the UK are, on average, each owed £6,142 through firms not paying them on time.   Worldwide, late payments add up to an incredible $3 trillion!!

Furthermore, 10% of SME invoices are paid late.  Late payment and supply chain ‘bullying’ from larger firms often sees SMEs applying extra resources to chase late payments. Typically, 10% of late payments are subsequently written off as bad debt.

 

How does late payment affect SMEs?

30% of SMEs claim to experience direct negative consequences of late payment, and 37% of small businesses suffer from cashflow difficulties. These difficulties often force small businesses to downsize the forecast for profit growth and turn to loans or overdrafts to cover the shortfall.

Accountancy software company, Xero, found that over 50% of invoices to SMEs were paid late in 2017. This impact is industry wide. On average large food producers take 60 days to pay an invoice, the construction sector taking an average of 57 days to pay, while British blue-chip companies take 53 days. 

Late payment doesn’t just affect small businesses, but the people behind the businesses too. A study of UK SME owners found that 29% had suffered from anxiety, stress and other mental health issues because of late payment and one-fifth of respondents struggle to pay the mortgage/rent. Indeed, 36% of business owners have sacrificed their own salary due to late payment.

 

Why SMEs need prompt payment

Late payments cost the UK economy £2.5 billion every single year, so it is essential for decision makers to encourage immediate payment to SMEs.

With growth in the mindset of many SMEs, it is vital to increase cashflow to not only survive difficulties but to thrive and develop. In fact, 43% of SMEs across the globe say that predictable, real-time payment is essential to their success.

How can immediate payment help?

  1. Cashflow control

Invoicing multiple clients, on multiple payment terms, can be confusing when it comes to cashflow management and revenue prediction. Do you know exactly what is coming in and when?  With real-time payments, it makes it much easier to manage cashflow and ensure you have the finances in place to not only cover the expenses but the confidence to fuel further growth. 

  1. Free up resources

Chasing payments can be a drain on finance and resource. With fast payment, SMEs do not need to have a dedicated resource to pursue late payments or ensure that there is someone continually checking for payments and responses to invoices. Instead, you have capital and resource to focus on profit-making activities.

  1. Increase sales

Immediate payments allow business to focus on increasing their sales through a more efficient order cycle. With instant payments, it lowers the risk of bad debt and allows the SME to accurately predict revenue and forecast thereon.

  1. Reduces reliance on external funds

Many SMEs turn to their bank when a cashflow problem hits. However, with external funds comes external cost and further liability to the balance sheet.

Having the opportunity to drawdown on an invoice 24hrs after it was raised, for a small fee, mitigates the need for external capital into the business. The SME is just leveraging their own future cashflow.

 

adam has partnered with GapCap, to help by offering providers with the opportunity for early payment on supplier invoices – enhancing their cashflow and a reasonable cost.

 

N.B.

*see hyperlinks for data sources.

*All opinions are of the individual and not the views of any named party in the article.  

*All information was sourced independently and is not binding to the individual or any named party.


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