Are Late Payments Hurting Your Business?

On the surface, late payments don’t seem like too much of an issue. As long as the money ends up in your account eventually, there’s no problem, right?

Well, no. A consistent and predictable monthly cash flow is crucial to your business. It just so happens that small businesses are the ones hit harder by late payers.

A recent study by Direct Line shows that 81% of tradespeople are chasing late payments, totalling an average of £6,210.

For many, important business decisions, like hiring an engineer, investing in new equipment, and even taking a much-needed holiday, all depend on how much cash enters the bank at the end of each month.

If you sit on a swathe of unpaid invoices, you might find yourself suddenly unable to afford something your business really needs. If you’re not careful, this can spiral and seriously hurt your business.

How frequent are late payments?

Looking at a period of one month, around 80,000 invoices were sent out by heating and plumbing companies using our software. Even when allowing for a two week payment period, only about 43,000 were paid in full – leaving businesses waiting on roughly 46% of invoices. This is in line with figures gathered by other companies, such as Due.

While it’s true that the majority of these were eventually paid in the following weeks, the numbers are troubling. Small businesses in the UK are owed £32.1 billion in late payments, according to Simply Business’ SME Insights Report, and, together with the cost of living crisis, this helps show the real world issues trades businesses are facing.

How late payments hurt your business

Late payments are one of the biggest causes of stress and cash flow problems for businesses. In fact, up to 25% of business owners say they haven’t been able to take a holiday in the past couple of years because of money tied up in unpaid invoices, according to research from Barclays.

On top of this, an unreliable or limited cash flow caused by late payments can mean you have to backtrack on plans such as hiring new employees and investing in new equipment. And there’s also the time wasted chasing up late paying customers.

Why do some customers take so long to pay?

We believe this stems from the problems surrounding common payment methods.

Cash or cheques are becoming less common for two reasons. Firstly, they’re troublesome to deposit in the bank. Secondly, most customers don’t carry enough cash or even have a chequebook anymore to pay on the spot.

You could offer customers the option of card payments, but they typically come with fees of 1-3%, which rack up in the long run.

Bank transfers then seem like the logical choice: money is sent straight to your account and there are no fees. But they’re also the most time-consuming option for your customer. They have to find your bank details, log into online banking, and make the transfer. It is rarely done on the spot, and then simply forgotten about.

Every trades business experiences the pains of late payments. But few consider it as something they have any control over.

We believe it should never be chalked up to a fact of doing business. Fortunately, there is a new and innovative way of accepting payments that encourages fast payments and ultimately makes running your business a less stressful experience.

How you can use QR codes to completely avoid late payments

QR codes are nothing new, but they’ve been steadily creeping their way into our daily lives on restaurant menus, adverts, and many other places. Now, open banking companies (regulated financial service providers that aren’t your high-street banks) are using them to create simple and fast payment systems. These happen to be the ideal solution for trades businesses. 

They work on one simple basis: making the payment process as quick and painless as possible for the customer.

Unlike a bank transfer, your customer doesn’t have to go out of their way to make the payment. Rather, if you use a platform like Gas Engineer Software to automatically generate a QR code with your invoice, customers can simply scan and pay in seconds.

Money is then sent directly to your account (with much lower fees than card payments), and there’s no need for them to log into internet banking, manually type in the amount, and check they’ve entered your details correctly.

Send professional invoices with Gas Engineer Software that include a QR code, automated follow-ups, and more.

Closing thoughts

Trades businesses have always been plagued by late payments. Even with advancements in mobile banking and card payments, it seemed as though every method came with its own set of problems.

Open banking companies are now using QR codes to help facilitate quick and easy payments. This system is ideal for trades businesses who want to start getting paid on time and without hassle.