Late payments in the manufacturing industry – addressing the issue and effecting solutions. By Stuart Hall
Running a business comes with many challenges. Many of them are unavoidable but some of the most common and avoidable challenges come with late payments and the wide-ranging issues that come with it.The UK is the biggest culprit when it comes to this, accounting for the highest overall proportion of late payments globally. According to our recent survey, 17 per cent of all payments in the UK are late and nine per cent are eventually written off as bad debt.Worryingly, UK SME manufacturers are particularly affected by this problem. Another survey found that they are the worst affected of all business sectors and are owed £83,000 on average.
For SMEs especially valuable time that would otherwise be spent improving products and services, and growing the business is often wasted on chasing payments. So, it is unsurprising that it is one of the biggest barriers to productivity and growth. In fact, 40 per cent of SMEs have said that they saw a direct, negative impact on their business from late payments. Businesses owners are unable to invest in the company and cover essential overheads like paying staff or their own suppliers – creating a vicious cycle. On average, UK SMEs spent 15 days per year chasing late payments. Rather than being a minor inconvenience that businesses have to accept, late payments can be the difference between staying afloat and entirely going out of business.
Addressing the issue of late payments has to be a priority for anyone connected to the manufacturing industry. Something needs to change and we must do what we can to put an end to the domino effect set off across the spectrum of business partners set off by late payments.
A change in culture goes a long way
One of the biggest reasons why UK businesses don’t chase late payments is the fear of damaging client relationships.Whilst understandable, this thinking is simply unsustainable. First of all, there’s no reason for businesses to endure late payments, especially when it endangers their livelihood.
A culture shift is needed so that manufacturers, and other business owners, are emboldened to confidently pursue outstanding payments. Otherwise, they will be putting their own businesses and other businesses connected to them at risk.This change in mentality can instead set off a positive domino effect, enabling businesses to run more efficiently and add value to the customer experience, whilst also freeing owners to increase investments and plan for growth.
Bring payment to the start of the conversation
The most common excuse customers give for paying late is that the payment has been made, but is still pending. Payment should be an essential part of any transaction and not just an afterthought, and payments being put through at the very last minute suggests they are not prioritised as they should be.With the right emphasis, a lot of improvements could be made on the late payments issue if businesses tighten their terms of service from the beginning of the conversation.
To address this issue, it is important to establish clear payment terms from the start of the conversation. Most people are likely to pay faster if they are told it is a requirement for service. Not only does this make for a more efficient process, but it also helps to manage customer expectations and allows them to schedule their payment in advance.
Simplify the process
For many people, the process, not an unwillingness to pay, is what stops them from paying on time. Too often, there are too many hoops to jump through and too many processes to navigate before payment can be completed. From formfilling to security checks, there s often a long list of things to do before payment can be completed.
When the process of making payments is simple, businesses will find they won’t have to ask twice. Automatic and digital payment methods, such as direct debit and e-invoicing, can make payments as painless as one click for customers and virtually eliminate the top obstacles to getting paid on time.
Digital payments are also automatically reconciled in your bank account, which gives more visibility and control of cash flow and reduces the need for dedicated staff for tracking transactions. These more reliable payments mean businesses can forecast the funds they will have available throughout the year and adjust as needed.
If a payment is late, technology can also be harnessed to automatically chase invoices. No need to worry about the awkward conversations about late payments or strained relationships. Employees can actually focus on adding value to the business and customer experience.
However you look at it, there is no reason for late payments to still be a scourge on businesses in today’s world.We must work together to erase this habit, as well as every other avoidable obstacle that affects business growth.
With the UK government’s big ambitions to be at the forefront of global innovation and technical advancement, it is important that we address every hindrance in the way of that plan.The manufacturing industry plays a crucial role in the strength of our economy, but late payments can put all of that at risk.
When you consider £13,780 per second and a total of seven days and two hours (as of the time this article was written) has been lost to needless administrative tasks like chasing payments in 2018 alone, you can see the real impact of these late payments.This time and money can be invested into the business, its processes and innovation which will in turn lead to more growth, better products and service, and a stronger economy. Everybody wins.
Stuart Hall, is Sage Enterprise Sales Manager. Sage is the global market leader for technology that helps businesses of all sizes manage everything from money to people – whether they’re a start-up, scaleup or enterprise. Sage s mission is to free business builders from the burden of admin, so they can spend more time doing what they love. Sage has three million customers across 23 countries.