Getting the cash flowing again

By Henning Holter, Head of Global Business Development, Tungsten Network Finance

In 2017, we spoke to more than 500 businesses across the world and almost half (47%) admitted that at least one in 10 payments to their suppliers are made after their agreed payment terms. Only 5% said they always pay their suppliers in the time promised and one in 12 said they fail to monitor their payment practices altogether. This late payment culture hits SMEs particularly hard because they don’t usually have the luxury of deep cash flow reserves.

According to Bacs, UK SMEs are owed around £14.2 billion in overdue payments. This has come down quite significantly since 2012 when overdue payments were around the £30.2 billion mark but it is still a totally unnecessary burden to be placing on small businesses.

Mounting pressure has resulted in the government announcing legislation to address poor payment practices. Last April, the Department for Business, Energy & Industrial Strategy (BEIS) introduced the idea of half-yearly reporting cycles on the payment policies, practices and performance of medium and large businesses with the explicit hope of reducing late payment to SMEs. By the end of November 2017, the first wave of companies should have submitted their data to the government. Only time will tell if makes a different to the way companies operate.

We believe the key to change is understanding what lies at the heart of the problem. Historically, most people thought that late payment was due to companies holding on to their cash for as long as possible. However, our Friction Index which looked at the causes of friction in supply chains sheds new light on the problem. Sixty four per cent of businesses blamed slow internal processes; 39 per cent blamed lack of automation; 27 per cent administrative errors; 20 per cent team capacity to manage the volume and only 16 per cent referred to managing cash flow.

So what can SMEs do to encourage customers to pay on time?

  1. Get organised – small business owners often think a lot about their products or services but less about their system for invoicing and collecting debts. Yet if you don’t get paid, everything will jam to a halt. Work out what your system is for transferring work completed to an invoice and then get it to your customer promptly.
  2. Identify sources of friction within the payment process – look at who is regularly delaying payment. Is it always the same customer? Are there particular times of year when late payment is more prevalent? What can you do to smooth the process?
  3. Evaluate risk – carry out credit checks on customers before getting into business with them and consider credit insurance so you are protected.
  4. Know your customers – understand their payment process and the systems they use, and if possible get to know the individuals dealing with invoices. Ensure your invoices fit into their way of working and work on developing a good relationship with suppliers and clients so you know who to go to in order to free a blocked invoice and get paid on time. Keep customers informed of what your business plans are and look for ways to stay in touch regularly.
  5. Agree terms upfront – draw up a robust commercial contract or set of trading terms and conditions which everyone has seen and agreed upon before any goods or services are provided. Make sure you include key terms such as payment and penalties for late payments.
  6. Know your rights – the law gives you as a supplier the ability to charge interest on overdue payments if you would like to. This isn’t necessarily an approach to wield too quickly as it may damage relationships beyond repair, but it can be a tool to be aware of if payment has been delayed again and again. Or it can be used as a way to add more pressure to customers if they are stalling.
  7. Finally explore how new technology could help – automation and e-invoicing can streamline and speed up the payment process and entirely eradicate the administrative errors and bottlenecks that are synonymous with many paper-based systems. In addition, you can have full visibility of the status of an invoice online which means you don’t need to contact customers to ask whether an invoice has been received.

As with many things, a multi-pronged attack is usually the best approach. The Government’s twice yearly reporting cycles combined with suppliers getting more organised and automating payment could go a long way to transforming this often convoluted process and ensuring SMEs actually get paid on time. It is in no one’s interest for the situation to continue as it is with hours spent on the phone chasing for payment and SMEs struggling with huge amounts of cash tied up in unpaid invoices. It is time for the digital revolution to impact the back office as much as it has transformed our personal lives.

To view the full study visit:

To find out what is causing friction in your business, visit



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