As a collective, small and medium-sized enterprises (SMEs) are owed more than £50 billion by companies who have delayed settling their invoices. Cash flow is essential for SMEs, and this concerning pattern is causing these businesses to spend approximately 1.5 hours per day chasing these outstanding invoices.
A recent study suggests that companies have five outstanding invoices on average. For specific types of businesses, the figures are as follows:

• Self-employed or lone workers
• Average invoices – four
• Average total cost – £1,000
• Between 10 to 15 employees
• Average invoices – eight
• Average total cost – £13,000
• London based SMEs
• Average invoices – seven
• Average time spent chasing – two hours a day

In particular, self-employed business owners are experiencing the consequences of chasing these invoices. Even a few late payments can risk these companies becoming insolvent.
The Government has pledged to assist small businesses in tackling these outstanding invoices:

• Small businesses can charge up to eight per cent of ‘statutory interest’ – plus the Bank of England base rate for business to business transactions – if a payment from another business is late

Avoid the chase

• Set payment terms and expectations with your client early, including:
• When you will provide the invoice
• Payment term – usually 30 days for small businesses and 60 days for bigger organisations
• Warn your clients if you have decided to charge interest
• Common charge is two per cent after 30 days, three per cent after 60 days
• Ensure every client has a copy of your up to date terms and conditions
• State your terms clearly on every quotation you give to a potential or new client
• Find out who is responsible for processing the payments and use them as your point of contact
• In the event of a verbal payment agreement, confirm this through email as well
• Check the clients have accepted the payment terms

It could be beneficial to keep a template email or letter which makes clients aware of the interest rates. In the event of a late payment, you can use this template but, a new invoice must go out if you then decide to add interest to the money you are owed.
If you are struggling to decide on interest rates or would like to know more about our accounting services, please contact our expert team today.