Delayed Payments May Cause Significant Problems, Yet Offer Strategies for Resolution
In the UK, industries such as manufacturing, transport, and administrative services have been identified as the slowest payers, with average Days Sales Outstanding (DSO) well above 50 days. This prolonged wait for payments can cause significant cash flow issues for Small and Medium-sized Enterprises (SMEs) and insurtechs.
John Atkinson, Head of Commercial and Strategy at Novuna Business Cash Flow, emphasizes that many cash flow problems stem from preventable breakdowns. To minimize the risk of late or non-payment, it's crucial for SMEs and insurtechs to focus on identifying common causes such as cash flow shortages, operational inefficiencies, and client credit risks.
The top reasons for unpaid invoices include "No response" (20%), "Still in customer approval process" (15%), "Copy requested" (12%), and "Slow payer" (7%). By understanding these reasons, businesses can take proactive steps to improve their cash flow.
Partnerships between fintech companies can offer SMEs solutions for managing late payments and improving cash flow. The industry is witnessing a shift towards technology-enabled payment innovations, with the migration to modular, API-driven banking infrastructure supporting open banking and real-time payments. This improvement in transaction speed and transparency can significantly enhance the reliability of payments.
Integration of AI and automation is another trend that aids in early detection of payment risks and improving collection efficiency. Insurtechs are leveraging technology to revise risk offerings and enhance mitigation capabilities, supporting better payment risk management.
Practical steps to improve cash flow and reduce payment risk include establishing a comprehensive risk management framework, implementing proactive credit evaluations, using clear, enforceable contracts, employing insurance policies to transfer credit risk, and adopting real-time payment systems. Outsourcing follow-up on unpaid invoices can also help alleviate the pressure of managing late payments and credit control in-house.
Education stands out for consistently paying within 30 days, demonstrating the impact of adhering to practical steps such as confirming PO requirements upfront, logging hours and pricing as work progresses, sending invoices promptly, following up consistently, and knowing when to escalate.
Unfortunately, uncertainty after the Corona outbreak has left many small businesses concerned about late payments. However, by understanding the common causes and industry trends, and by taking practical steps, SMEs and insurtechs can significantly reduce instances of late or non-payment and maintain healthier cash flow positions. The use of a dedicated team can improve visibility of cash flow for SMEs, reducing internal admin stress and improving forecasting capabilities.
Late payments cost the average small business in the UK £22,000 per year and force around 50,000 companies to close annually. By addressing these issues, SMEs can not only survive but thrive in the current economic climate.
- Insurtechs can collaborate with fintech companies to provide Small and Medium-sized Enterprises (SMEs) with solutions for managing late payments, thereby helping them maintain healthier cash flow positions.
- Implementing a dedicated team for cash flow management can improve visibility, reduce internal admin stress, and enhance forecasting capabilities for SMEs, potentially protecting them from the financial repercussions of late payments in the personal-finance sector.
