Late payments are a pervasive challenge for small and medium-sized enterprises (SMEs) in the UK, particularly in uncertain economic times. According to the Federation of Small Businesses (FSB), around 50,000 SMEs close each year due to cash flow problems triggered by late payments. With over 50% of small businesses regularly dealing with overdue invoices, it’s clear that effective management of these payments is critical for business sustainability.[1]

As accountants and bookkeepers play a vital role in managing the financial health of their clients, they are uniquely positioned to help SME owners combat late payments. By implementing structured systems and proactive strategies, they can help SMEs maintain a healthy cash flow and improve financial stability. This article will explore key methods, metrics, and strategies for managing late payments.

Key Metrics for Managing Late Payments

Tracking the right metrics is crucial in managing late payments, as it helps businesses understand the severity of the problem and implement corrective actions. Here are three essential metrics to monitor:

1. Days Sales Outstanding (DSO): This measures the average time it takes for a business to collect payment after a sale. A high DSO indicates that late payments are becoming a systemic issue, impacting cash flow. By working to reduce DSO, accountants and bookkeepers can help businesses receive payments more quickly, ensuring better liquidity.
   
   

2. Aging Report: An aging report categorizes outstanding invoices by the number of days overdue (e.g., 30, 60, or 90 days). This helps business owners and accountants focus on problematic invoices and prioritize collections. By tracking the aging report, SMEs can stay informed of potential cash flow bottlenecks and implement corrective actions before the situation worsens.
   
   

3. Average Days Delinquent (ADD): This metric tracks the average number of days payments are overdue from individual customers. It offers a granular view of which customers are consistently paying late and allows businesses to address the issue with specific clients. By identifying chronic late payers, accountants can recommend strategies such as renegotiating payment terms or considering upfront payments for future transactions.
   
   

These metrics give SMEs valuable insights into their payment cycles and allow them to prioritize collections and manage cash flow more effectively.

Strategies to Minimize Late Payments

Accountants and bookkeepers, as well as business owners, can implement several proactive strategies to help SME owners reduce late payments:

1. Clear and Shorter Payment Terms

One of the first steps to managing late payments is ensuring that payment terms are clear and concise. Many businesses use standard 30-day terms, but businesses can sometimes shorten these terms to 14 or 21 days. By doing so, they reduce the waiting period for payments and improve cash flow. It's important that these terms are clearly communicated on invoices and contracts, leaving no room for confusion.

2. Automating Invoicing and Reminders

Automation tools can dramatically reduce the amount of time spent chasing late payments. By using an automated accounts receivable (AR) platform, invoices can be generated and sent immediately, followed by automated payment reminders. This takes the manual effort out of the process, ensuring that clients receive gentle nudges to pay on time.

3. Offering Multiple Payment Methods

Flexibility in payment options is a powerful way to reduce late payments. Being able to accept bank transfers, direct debits, and card payments, gives clients several ways to settle their invoices. By making it as easy as possible for clients to pay, businesses can reduce friction and ensure faster payments.

4. Incentives and Penalties

To encourage prompt payments, businesses can offer early payment incentives, such as a small discount for invoices settled within a certain period. On the flip side, implementing penalties for late payments can discourage delays. Accountants can help clients structure these penalties within legal frameworks, which allows businesses to charge interest on overdue payments.

5. Credit Control and Customer Vetting

Accountants and bookkeepers can help businesses manage credit risk by running credit checks on new clients or those with a history of late payments. For larger projects, businesses might require upfront deposits or partial payments to minimize exposure. This can help protect cash flow by ensuring that businesses aren’t overextending credit to risky customers.

The Power of Automation: Mimo’s Get Paid Solution

Handling accounts receivable manually can be time-consuming and inefficient, particularly for SMEs dealing with multiple clients. Mimo’s new Get Paid offering is designed to help SMEs manage both incoming and outgoing payments in one streamlined platform, optimizing the entire payment process.

Here’s how Mimo Get Paid can help SMEs minimize late payments and improve their cash flow:

1. Flexible Payment Options: By allowing clients to pay via bank transfers, direct debits, or cards, Get Paid gives businesses more flexibility in collecting payments. This flexibility can help accelerate the payment process by catering to clients' preferred payment methods.
   
   

2. Automated Reconciliation: One of the most time-consuming tasks in managing payments is reconciling invoices with incoming payments. Mimo’s Get Paid automates this process, eliminating the need for manual reconciliation. This reduces errors and saves time, allowing SMEs to focus on growth rather than administrative tasks.
   
   

3. Beautiful Payment Requests: Invoicing and following up on overdue payments can be tedious, but Get Paid automates this process by sending professional, beautifully designed payment requests and reminders to clients. This ensures that businesses don’t have to spend valuable time chasing clients for overdue payments.
   
   

4. One Platform for AP and AR: One of the standout features of Mimo Get Paid is its ability to integrate both accounts payable (AP) and accounts receivable (AR) into one platform. This gives businesses a comprehensive view of their cash flow, making it easier to track both incoming and outgoing payments. By having this holistic view, SMEs can better manage liquidity and plan for future expenses.
   
   

The Role of Accountants in Managing Late Payments

As financial advisors, accountants and bookkeepers have a critical role to play in helping SMEs reduce the impact of late payments. By implementing systems that track key metrics like DSO and ADLP, accountants can help businesses prioritize collections and stay on top of their cash flow.

In addition, by leveraging tools like Mimo Get Paid, accountants can automate many of the administrative tasks associated with invoicing and collections, ensuring that SMEs spend less time chasing payments and more time focusing on growing their business.

Conclusion

Late payments are a significant challenge for UK SMEs, but with the right strategies and tools in place, they can be minimized. By using key metrics like DSO and ADD, implementing clear payment terms, and adopting automation tools like Mimo Get Paid, accountants and bookkeepers can help SMEs improve their cash flow and reduce the risk of financial instability.

With these proactive steps, businesses can ensure they get paid on time, allowing them to focus on growth, innovation, and long-term success.