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Every business knows cashflow is vital to its survival, but Richard Owen of Voca Limited argues that few dedicate the planning and resources to ensuring payment processes are efficient.
A quick look at recent research not only illuminates how serious late payment can be for SMEs, it also highlights how common it is. The challenge is to find ways to leverage the wide range of payment options at your disposal to not only improve cashflow and reduce late payment but also do so in an efficient way that secures a competitive advantage.
The Direct Credit Combined Business Omnibus on Late Payments, May 2004, found that around one-third of SMEs experience late payment problems. Businesses in the UK are waiting for over £11 billion collectively at any one time, with each one owed an average of £33,600. More worryingly, if the delay in payment is up to two months late, around 17 per cent of businesses will collapse.
The key reason for paying late was cited, by 88 per cent of SMEs experiencing late payment problems, as deliberate withholding of payment. This problem was found to be further exacerbated by the large amounts of money owed - small businesses with late payment problems are owed an average outstanding amount of £20,330, while medium sized firms are owed £98,400 on average. Late payments amounting to £50,000 have the potential to put a shocking 55 per cent of SMEs out of business.
The consequences can be appallingly serious. For those that do manage to stay afloat, late payments have a considerable impact on day-to-day running and long-term business viability. Ten per cent of businesses will not be able to pay their workforce if payment is a week late, while 38 per cent of those with late payment difficulties struggle to pay their own bills on time. And for SMEs, fifty-eight per cent stated that they could increase productivity if they did not have to chase invoices.
These findings are also supported by research conducted earlier in the year by the Federation of Small Businesses, who found that one in four small businesses are going bust as a direct result of late payments.
The 'cheque's in the post' culture
It's certainly one of the most frustrating phrases for finance departments around the country, but SMEs cannot afford to just wait around until it goes away. Companies must be prepared to take action to ensure payments are made on time.
Most SMEs realise that enabling consumers to pay conveniently and securely by Direct Debit Bank transfers and card payments improves sales. But too many do not regularly review their processes, or consider corporate customers or integration with other business processes. Reviewing your payment strategies and payment procedures to ensure that they are achieving their original business objectives and maximising benefits straight through processing (STP) offers businesses a multitude of advantages.
A sensible first step can be to review the training levels within your accounts receivable department. Training courses can provide a platform for companies to learn how harnessing Direct Debit can improve customer retention, reduce costs and improve customer responses to promotional offers, in direct response to requests from businesses. With fully interactive training, the courses offer the latest learning management techniques, including a variety of real-time business simulations.
Staff who have responsibility for Direct Debit in a company are in a position of privilege when dealing with customers, and have to perform to consistently high standards. Training helps businesses leverage the value of Direct Debit systems effectively, ensuring best practice and maximum return on investment. These staff are the customer face of the company. If they are unable to efficiently and effectively deal with customers' payment problems, then there will be a direct impact on that company's brand and reputation. For SMEs, the brand and reputation is vitally important for continued business success and therefore staff training should be considered a priority.
Taking a more strategic view of payments, businesses can look at the underlying processes, which can over time deteriorate and impact on the bottom line via lost revenue, increased processing costs and a decrease in customer satisfaction. For example, businesses can secure additional savings or efficiencies by linking such payments into the automated processing and reconciliation of accounts.
Investigating the extent of the issue will answer the following key questions: - Do existing payment processes maximise benefits of STP and reduce your operating costs?
- Do existing payment processes avoid delays and customer dissatisfaction?
- Do existing payment processes comply with industry rules and utilise industry best practices?
- Do existing payment processes always result in successful payments?
- Do existing payment processes encourage customers to use automated payments?
- Do existing payment processes meet the business needs and protect the quality of the brand?
If the answer to any of these questions is "no" or "not sure", then your business could benefit from reviewing its payments procedures to identify issues and allow you to plan and implement improvements to meet your original business objectives and maximise STP.
Such a review can be undertaken in-house or with the support of industry experts. If you are thinking of conducting the review in-house you will need to consider if you have the necessary depth of expertise and knowledge, alongside the resource availability and commitment. Real improvements in payment processes often require you to make decisions that impact other areas of the business or invest resources, and you need to make those decisions the right ones.
Enlisting the support of external industry experts will ensure maximum value is gained from undertaking the review exercise. Investing in the time and effort to undertake a payment process review will reap many benefits, including increased STP, improved customer satisfaction and cashflow. These elements combine to generate operational efficiencies, cost savings and protection of the brand.
So in conclusion, do not neglect your payments processes and limit the value you secure from your business from them. Cashflow is too important an element to be ignored and left to chance. Just as with any other vital business process it will deteriorate over time and technological advances are constantly improving the tools and cost-savings available. A simple review of your supporting process can significantly improve your customers' experience of doing business with you, your cashflow and business efficiency. It's an easy way to get more from your money. Further Information
If you would like to know more about undertaking a payment review and how Voca can help you, please contact Richard Owen at
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