The problem of late payers has been around a long time - and it’s unlikely to be stamped out any time soon. But that doesn’t mean that late payments are something we should sit back and accept.
Quite the opposite – when late payments worsen, everyone needs to pay attention because, in our interconnected economy, the consequences of late payments affect practically everyone.
Since the start of the pandemic, almost half of organisations in the UK have seen late payments increase. But this ‘new normal’ is something that we need to nip in the bud.
The Government took action to improve its Prompt Payment Code at the beginning of 2021, but we all have a shared responsibility to reduce the time it takes to pay for our goods and services. And one of the best ways to encourage better payment behaviour is by thinking outside of the spreadsheet, and considering the human impact of failing to pay business owners on time.
Bills, bills, bills
We asked our customers to give us an insight into how late payments affect their businesses.
Several of them told us that late payments regularly impact their ability to pay both business and personal expenses. For example, one respondent, the founder of a furniture restoration company, noted the “knock-on effect on my own bills – shop rents and stock, and sometimes food”.
For many business owners, there’s no separation between business finances and personal finances. If their business is cash poor - so are they.
It's why late payments are such an emotive issue. Every payment matters to a small business or startup.
An outstanding amount that seems trifling to a large organisation could be essential for a business owner to make rent or pay their phone bill. Even before the pandemic, almost one quarter of small businesses claimed that late payments threatened their survival.
An anxious wait
Every sector suffers from late payments - even in high-performing areas of the economy such as technology. A software analyst told us that, when it comes to late payments, “three days late and I’m shivering.”
This level of anxiety is common amongst business owners and freelancers. They put the time and effort into doing a great job for clients, only to find their invoices taking weeks or even months to be processed and paid. It’s not a healthy state of mind for anyone to be in.
At best, late payments are an unwanted distraction to them as they’re trying to grow their business and do the best work that they can. But in the worst case scenario, late payments cause high anxiety, tension, anger, insomnia and more besides. It’s scary just how much this ever-present business issue can affect people’s mental wellbeing.
The sound of silence
Part of the problem with the late payments culture is the lack of communication around delays.
As one of our customers explained, “It’s annoying to chase. I’d rather they phoned or emailed to let me know a payment might be late or to explain the situation.”
And yet, time and time again, business owners complete their work and submit their invoices, only to be greeted by the silence. They simply have no idea when they’re going to get paid, which is why so many owners get into the obsessive habit of checking their bank account several times a day.
Chasing up late payments is uncomfortable and stressful, and a lot of the chasing could be cut out entirely if payers made more of an effort to communicate their intentions.
The vast majority of business owners aren’t expecting on-the-spot payment. They just need to be given a confirmed payment date so that they can plan how they’re going to manage their expenses and outgoings over the weeks ahead.
Payments connect everyone
“I occasionally have to lend my company money to make payroll,” admitted one respondent who has felt the full impact of late payments on their social media business.
Small business owners don’t have huge cash reserves locked away in the bank in case of emergency. So if their clients or customers don’t pay, they may struggle to pay their employees.
It’s a dangerous ripple effect that conscientious business owners refuse to allow if they can possibly help it – hence why our customer intervenes using his personal finances to keep payroll going.
This is something worth thinking about every time you receive an invoice, or you’re asked to make a payment.
Payments connect us all – as customers, as suppliers and, most importantly, as people. Making payments on time helps keep businesses healthy and has a massive, positive impact on people’s lives.