Could new late payment reforms improve your cash flow?
The Government has outlined plans to improve payment practices and support small businesses. Here is how you can strengthen your credit management and cash flow.
Late payment has long been one of the greatest challenges facing small businesses. Many profitable businesses experience unnecessary financial pressure simply because customers take longer than agreed to settle their invoices. When cash is tied up in unpaid debts, it becomes harder to pay suppliers, invest in growth or even meet tax liabilities on time.
The Government has recently outlined further plans aimed at improving payment practices and strengthening support for smaller businesses. While many of the proposals are still subject to legislation, they indicate a clear intention to encourage larger organisations to pay their suppliers more promptly and to provide greater protection for SMEs.
What does this mean in practice?
Although the reforms are welcome, businesses should not rely on legislative changes alone to solve cash flow problems. Good credit management remains essential and can often make a greater difference than changes in the law.
There are a number of practical steps every business should consider:
- Review your payment terms: Ensure your terms and conditions are clearly stated on quotations, contracts and invoices. If you currently offer 60-day payment terms as standard, consider whether a shorter period would be appropriate.
- Invoice promptly: Delays in raising invoices inevitably delay payment. Wherever possible, invoices should be issued immediately after goods are supplied or work is completed.
- Follow up overdue accounts: Having a structured credit control procedure helps remove the emotion from the process.
- Monitor debtor days: If debtor days are increasing, investigate the reasons before the problem becomes serious.
- Know your largest risks: Consider whether your customer base is sufficiently diversified.
- Maintain accurate cash flow forecasts: Regular cash flow forecasting allows potential shortfalls to be identified early.
How we can help
Cash flow problems rarely develop overnight. We can help you analyse your working capital, review your credit control procedures and identify practical ways to improve cash flow before problems become critical.
Disclaimer
The information contained in this article is for general guidance on matters of interest only. It should not be used as a substitute for consultation with professional accounting, tax, legal, or other competent advisers. Before making any decision or taking any action, you should consult a Kingscott Dix professional.