We are seeing a growing trend experienced by our SME clients whom provide services to large companies, this is the large corporations are pushing out their payment terms. We have seen one that now pays in 60 day terms and another that has switched its terms form 30 Calendar days to 30 Business Days.
This change is putting cash flow pressures onto the SME business and often is leading to them becoming slow payers also.
We have prepared three tips to release the pressure when your customers are slow payers:
1. Invoice Early
Quite simply the sooner you invoice the sooner you get paid. If you are not already doing so you should be sending all invoices via email, this is especially true as the regular mail service is taking longer than ever before.
2. Analyse your Gross Profit Margin
You should be looking at the Gross Profit (Income less Direct Expenses) for each of your customer types, it may be that the slow payers are actually highly profitable and worth keeping, conversely if they are at a low margin it may be worth no longer trading with this type of customer and instead focusing efforts elsewhere.
Although most large corporations work through competitive tender processes where possible, factor the cost of finance into your margins when quoting.
3. Seek Finance
Whilst this is not a measure to jump to if slow payers are damaging cash flow, there are several options that will in effect “fund” your debtors. These usually are at higher than regular interest rates and so the effect on your profitability should be considered.
Are you a SME that is struggling with cash flow and slow paying creditors?
Contact myself and the team at Sofra Partners Chartered Accountants and let us help you gain back control of your business finances!
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