The Late Payments Crisis

For small and medium-sized businesses (SMEs) in all sectors, late payments are more than just an inconvenience; they’re a threat to their very existence. Above all else, they hinder cash flow, which as anybody who works with small enterprises will know, is their most basic lifeline.

In this turbulent economic environment, where the lingering effects of the pandemic, rising costs, and the threat of a recession continue to weigh heavily on businesses, accountants are uniquely positioned to play a pivotal role in helping their SME clients navigate the challenges of late payments. By stepping in as strategic partners, accountants can assist SMEs in recovering billions of pounds in unpaid invoices, helping secure the financial stability and future growth of their clients and potentially their own practices. The ability to effectively manage and mitigate the impact of late payments is not just an additional service offering – it’s a critical opportunity for accountants to add substantial value to their clients and establish themselves as indispensable allies.

In this article, we explore the late payments crisis: its impact on SMEs and the broader economy, new regulations that are being drawn up to solve it, and the key role accountants can play to help their clients regain control and build resilience when it comes to managing cash flow.

Impact on SMEs

As some accountants may already be aware, the UK currently has some of the longest invoice payment windows in Europe, with many SMEs already finding it difficult to negotiate payment terms that suit them and their customers. When you consider that a very large percentage of invoices are also paid late, it creates a hostile environment for small, cash flow conscious businesses.

The construction sector is among the worst impacted by late payments, not necessarily because of the amount of money owed, but because it has a direct effect on multiple stakeholders, suppliers, and project deadlines.

Is Regulation Tight Enough?

The ripple effects of late payments extend beyond individual businesses. Hiring is halted or slowed to a crawl, jobs are made redundant, local investments decline and community resources become strained. That’s why the UK government is stepping up efforts to combat the late payment crisis, with an extension of the Reporting on Payment Practices and Performance Regulations 2017, which now requires businesses to report on the value of invoices paid late to foster some sense of accountability. Powers held by the Small Business Commissioner are also being enhanced, allowing them to undertake investigations and actively report on payment practices. But will this be enough to close the payment gap for small and medium-sized enterprises?

An Opportunity for Accountants

Accountants are uniquely positioned to be heroes in the battle against late payments. With a deep understanding of their clients' financial health and operations, they can provide more than just traditional bookkeeping services – they can offer strategic advice that directly impacts on their client’s bottom line. This might include advising SMEs on best practices for setting clear payment terms, negotiating upfront payments, and regularly reviewing outstanding invoices to catch late payments before they snowball into bigger problems.

But this is only the beginning. Accountants can also leverage technology to streamline the invoicing and payment process for their clients. Digital tools and software such as Xero offer robust features for automating invoice tracking, sending payment reminders, and managing accounts receivable. These tools not only save time but also reduce the likelihood of payments slipping through the cracks. By integrating these solutions into their service offerings, accountants can help their clients stay on top of their invoicing, ensuring that payments are received promptly and that cash flow remains steady.

However, while traditional accounts receivable management can address some late payments, longstanding debts or unresponsive customers often require a more specialised approach.

Introducing Paycada

It’s one thing to streamline billing cycles and send payment reminders, but recovering payments from long-standing invoices can be gruelling work. The longer an invoice goes unpaid beyond the payment deadline, the less likely it is to get settled. This often leads businesses to write off unpaid invoices and take the loss, severely impacting their cash flow and long-term financial health. An accountant with the right tools in place can make all the difference, helping businesses regain control over their cash flow and recover debt without the need to use multiple third parties or manually chase payments.

That’s where Paycada comes in. By seamlessly integrating with Xero, Paycada allows accountants to streamline their clients’ billing cycles, ensuring that invoices are followed up on automatically. But what makes Paycada really stand out is the powerful solution it offers for recovering long-standing debts through our sister company Bluestone Credit Management, an FCA-regulated collections agency. When invoices remain unpaid despite repeated reminders, Paycada automatically steps in with professional debt recovery services, leveraging Bluestone’s expertise to secure payments that might otherwise be written off. With Paycada, accountants have everything they need to expand their services beyond what is typically expected of them, delivering a comprehensive cash flow management system to their clients.

“In the ten months since first implementing Paycada via Xero, our three-month+ aged debtors have fallen by 66%.” - Paycada Client

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Are you attending Accountex Manchester on the 17th September? Visit us on stand A9 and let’s discuss how you can support your clients with late payments.

Paycada is built by Fignum, a leading developer of cloud-based software solutions for the financial sector. Fignum is part of the Bluestone Group, a company with a longstanding history in financial services since its founding in 2000.