By failing to chase up late payers, small businesses are damaging their cash flow, according to one software firm.
FreeAgent, which provides online accountancy software, says that small and medium sized enterprises (SMEs) are the worst at chasing up their unpaid invoices.
The firm says SMEs are giving their customers far too much leeway by waiting too long before they chase up unpaid debts.
In a survey, they found that only 14% of small firm owners would chase up an unpaid invoice in the first week.
That’s just one-in-six business owners willing to do so – and just 19% said they would wait two weeks for the invoice to be paid.
The firms, which employ fewer than five people, also confessed that 18% would wait for up to two months before chasing with 4% saying they were prepared to wait up to three months.
Another 2% said they would longer but an incredible 4% of SMEs said they would not bother chasing up an unpaid invoice.
The co-founder of FreeAgent, Ed Molyneux, said: “It’s important for a small business to ensure that they get paid on time and when invoices are overdue they should chase customers to request payment.”
He says that without the income a small firm will be unable to grow its business.
All businesses should chase up their unpaid invoices in the first week after they fall due though Mr Molyneux accepts that for many people doing so it can feel awkward demanding payment from customers – particularly those they are on good terms with.
Small business need accountants with payroll and invoice services
He adds that small firm owners should get into the habit of setting aside a regular time every week to go through their outstanding invoices and also to check their business finances and take the opportunity to review expenses.
By doing so, he says, a business will soon identify which invoices are due and which are late and set in place a system to get them paid before they become bad debts.
He said: “This process should be part of a small business routine.”
A good accountancy and tax firm will help keep on top of their invoicing and credit control systems.
Firms like Yorkshire Accountancy offer a service to carry this out for clients and also offer free software to help keep their books up-to-date.