Economic Cost of Late Payment
Invoicing and payments don’t need to be slow in this day and age. With all of the technology that we have available to us, the process has the potential to be much faster. We can send invoices in seconds and transfer money in only a few minutes. As a small or medium business owner, slow invoicing and payments can be frustrating, to say the least. While you might know that it can have an impact on your cash flow, you may not be aware of the wider economic cost of slow invoicing.
According to the Federation of Small Businesses, the UK economy could have benefited from an extra £2.5 billion in 2014 if there had been no late payments to small businesses. They say that late payments have caused 37% of small businesses to experience cash flow problems, 30% to use an overdraft, and 20% to see a slowing in profit growth. The average value of late payments in 2014 was more than £6,000, and many small businesses suffered at the hands of big business. 61% of small businesses were paid late by a big business.
Late payments are often the result of delays on the client or customer end. However, businesses can cause further delays for themselves if they’re slow to create and send invoices. If you’re still relying on carbon copy forms to create your invoices, it can slow everyone down. Everything is on paper, which is inconvenient for anyone who likes to keep things digital. You need to hand it to someone in person or deliver by snail mail. When receiving a paper invoice, clients might need to record and file the invoice, as well as secure approval, before they’re able to make a payment. Paper invoices can easily get lost too.
Creating a digital invoice is a much faster process for everyone, immediately producing a formatted document that is easy to send and to process. With your own app, you can create personalised PDF invoices in seconds. Both your client and your own financial department will have a copy of the invoice promptly, enabling speedier payments.
In addition to experiencing late payments, the majority of small businesses who have dealt with them don’t apply interest to late payments. This has been allowed (in EU law) for 20 years now, but small businesses are sometimes worried about scaring off customers with late payment charges.
This is another issue that properly formatted invoices can help to address. By automatically expressing clear payment terms, including charges for late payment, receiving payments on time and chasing up late payments both become easier. Invoices can also feature specific payment dates, instead of general payment terms. This detail can easily be included in a formatted digital invoice.
Faster invoicing results in faster payments. The sooner you send an invoice to a client, the quicker they can get it approved and send your payment on its way. Your business needn’t miss out on vital funds and face disruption of cash flow due to late or slow payments.