Recent data from Xero Small Business revealed that late payments have increased, with delays averaging 7.3 days between April and June 2024.
This marks a rise of 1.8 days over the previous quarter, representing the most substantial quarterly increase since the onset of the pandemic.
The retail and hospitality sectors are particularly hard hit, worsening cash flow challenges amid ongoing inflation and economic uncertainties.
Effective strategies to counter late payments
To minimise the impact of late payments, small businesses can adopt several proactive measures:
- Ensure that all contracts and invoices include precise payment terms. Clarity from the outset can help prevent misunderstandings and set expectations for timely payments.
- Send out invoices immediately after delivering goods or services. The quicker your customers receive their invoices, the sooner they are likely to pay.
- Encourage prompt payments by offering discounts or other incentives for customers who settle their bills before the due date. This can be an effective way to improve cash flow.
- Maintain regular communication with your customers to build trust and encourage timely payments. A strong relationship can make it easier to address payment delays when they occur.
- Before extending credit to new customers, assess their creditworthiness to reduce the risk of late payments. This can help you avoid working with customers who have a history of payment delays.
- If you face chronic late payers, exploring legal avenues for debt recovery may become necessary. While potentially costly and time-consuming, legal action can serve as a final measure to recoup outstanding payments and send a strong message to other customers.