What Are Late Payments Really Costing Your Business?
Clearly, overdue payments can have a devastating effect on any business and on SMEs in particular. There is legislation in place to help but business owners tend to avoid implementing it for fear that imposing late payment charges might upset major clients. This leaves the small business owner with a dilemma.
On the one hand he or she doesn’t want to risk annoying the client, but on the other, the client’s happiness could well be costing the business a small fortune. Using a professional debt collection company may seem like a last resort but there are some very good reasons for considering the possibility sooner rather than later.
Amy Harris, Community Manager for Expert Market (a business website partnered with UK collection agencies) offers five ways debt collection can help your business.
1. Increase Productivity Time by 20 Per Cent
We have all heard the expression ‘time is money’ but results of the Barclays Local Business Annual Late Payments Report really do throw fresh light on its meaning. The report states: “evidence suggests that smaller firms spend the longest chasing payments; around 1.65 hours per day.” That amounts to a staggering 20 per cent of a working year!
It seems that they’re not always successful in getting the payments due, either. By outsourcing to a professional debt collection team, the business would not only stand more chance of getting paid, but the time usually spent chasing overdue payments could be used in a more productive and profitable way.
2. Maintain Healthy Business Growth with a Continual Cash Transfusion
When a business is operating to a tight margin, it doesn’t take too many late payments to seriously damage its health. Cash flow is the life blood of a business, so when it’s stemmed it’s only a matter of time before any profits made will be called upon to meet the shortfall.
Any plans for growth will have to be put on hold. Without an adequate debt collection strategy in place, this situation is set to continue and will escalate until the unthinkable happens.
3. Gain a Competitive Advantage
Debt collection is not the first thought that comes to mind when considering how to get ahead of the competition. However, if a business has more time and cash available, it will be able to respond far more quickly to new business opportunities. It will also be in a position to protect hard earned profits generated by any new business gained.
Successfully recovering what’s owed to your business at the risk of upsetting a big client may initially seem counterproductive, but approached in the right way could be a positive boon to your business.
4. Eliminate Unnecessary Stress
The day to day running of a business has enough challenges for any owner without adding the stress of not being able to keep on top of business debts. Businesses struggling with their clients’ late payments soon find themselves battling to keep up with their own bills.
As smaller businesses often have to pay upfront in order to fulfill an order, this serious lack of available cash can hit them hard. Left unchecked, the effect can be far reaching; as suppliers stop delivering, work grinds to a halt and staff become affected.
5. Protection for those Hard Earned Profits
If a business can keep on top of debt management, it will be in a position to pay its own bills in a timely fashion. Not only will this keep supply lines open, but the company will be able to avoid late payment costs of its own.
Missing cash has to be replaced somehow and unfortunately the shortfall is usually made up by borrowing more from the bank. The result is that the company has to pay the bank charges as it sits back and watches its customers eat into its net margins.
Balancing the Books
When you have exhausted all the usual avenues of getting paid, it may be time to bring in a professional debt recovery team. It shouldn’t be assumed that the debtor will never want to do business with your company again.
Using a third party to recover what’s owed can make the process more business-like and less personal. On balance, a debt collection firm with a proven track record, that can assess your debtor’s situation and formulate a workable recovery strategy, could prove to be a real asset to your business.