How important is cash flow to your business?
Cash flow is one of the single most important aspects to any business, large or small. It allows a business to negotiate better discounts with its own suppliers, invest in the business itself and, for the business owner, perhaps even sleep at night.
So why is cash flow a problem? One of the obvious reasons is that sometimes invoices aren’t always paid on time. This means that the customer is using the supplier as a bank, borrowing money from it in the form of unpaid invoices!
Late payment is a big problem for businesses. So whilst a business has an entitlement to be paid for work done, and most businesses set their terms of payment out before starting their work, late payment can result in a business struggling to survive or even face closure.
The Late Payment of Commercial Debts (Interest) Act 1998 was introduced to help with business to business (B2B) debts. This gives valuable rights to late payment compensation (from £40 to £100 per invoice depending on value) on overdue invoices and interest at a rate of 8% above base rate. This currently amounts to 8.5%.
In addition to this, businesses can recover their reasonable legal charges for B2B debts, so the legal expenses that businesses incur are paid by the debtor and not by the business who has already had to wait for its money.
So make sure:
- Payment terms are clear and agreed in advance
- Invoices are sent promptly and follow them up just before they fall due
- There is a credit control process which is followed, using calls and written reminders
- Use the Late Payment Act to encourage customers to pay, and to help cover the costs when they don’t
For help with debt recovery, contact our director Asit Jansari.