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Late Invoice Payments Damage Most EU SMEs. How to Minimize Risks for Your Business

Feb 6, 2023 · 6 min read

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Constant cashflow is vital for business. However, for SMEs the problem is usually more touching. A big company or a corporation probably has some money ready to burn, while most SMEs aren’t ready to reinvest money to grow further right away.

Let’s take a look at the issue of late payments for small businesses and how your company can fight it using Enty.

Nearly 50% of Invoices Issued by Small Companies are Paid Late

So, the issue of late payments is rather gigantic. The exact number of affected companies will differ from country to country and from research to research. One thing is clear though, the trend is rather is disturbing and consequences for SMEs all over the world are severe.
Research by XERO, highlights that in the UK alone late payments cost small business owners £684m a year. On average, payments are only 5 to 6 days late which seems manageable. But over 12% of payments are over a month overdue which hurts SMEs. Late payments affect company’s cash flow, making it negative in some cases.

The same research shows that over 90% of small businesses in the UK, Australia, and New Zealand experience at least one month of negative cash flow each year. But another figure seems more troubling, the cash flow of an average small business is negative for about 1/3 of the year.
Another UK research by Tide bank reveals that 16% of invoices issued by solopreneurs and small businesses are paid late. What’s more interesting, this research also examines individual sectors impacted by late payments.

Anyone who ever worked in Marketing, PR, or Communication won’t be shocked to find out that 19.23% of invoices are paid late with an average of overdue of 12 days. But, it’s actually the IT sector that was crowned the king of late payments with 20.23% of invoices paid over 35 days late on average.

How Late Payments Hurt Small Companies

The majority of small business owners and solopreneurs don’t have gigantic reserves or extra money to burn. We’ve already discovered that late payments might lead to negative cash flow. Due to negative cash flow, business owners must take money from reserves, borrow it, or don’t pay someone too.

According to TomatoPay’s research, 33% of small business owners are forced to pay late which damages even more businesses. And 17% have to pay employees late which might lead them to leave an employer for somewhere else with a steady cash flow. For instance, in 2015 the European Commission found out that around 30% of businesses across the EU indicated that late payment had links to subsequent redundancies.
But generally, late payments limit companies growth. Companies have to focus on surviving rather than growing further, while these businesses have already worked hard enough. In 2022, the Joint Research Center of The EU commission published another report, according to which cash flow of EU companies would increase by 66 % if payments are made within 30 days.

Based on this information, it's clear that businesses would’ve been able to grow faster and with less trouble, or they would’ve been able to get the same result with less work. The damage to mental wellbeing of entrepreneurs is way harder to track comparing to financial loses and layoffs. But does the intractability make it less of in issue?

The Roots of the Problem

Oh well, where do we start? Dozens of small issues lead to late payments but let’s try to focus on the main ones.

Many specialists state that general payment terms are unfair to the creditor. The interest rate on the late payment is applicable only when payment is at least 30 days late. Plus, the average payment term set by the EU Late Payment Directive is 100 days for public authorities, which is completely unacceptable for small enterprises. At the same time, penalties for late payments are insufficient.

The second problem is different. Small businesses and entrepreneurs simply can’t afford to lose customers, even if they treat them ugh… unfairly. “Received late payment? Well, at least the money is there” that’s what a small business owners think and what other choice do they have?

This issue also has a different side to it. Many b2b businesses depend on the clients that are bigger. Sometimes, a bigger business is the sole client that smaller businesses have. So, if a smaller company requests payment to be settled in a timely and fair manner, it might easily result in them parting ways.

Another common problem is that small businesses or solopreneurs don’t have a dedicated person to take care of the payments. This issue can be solved through automation but reluctance to innovation appears in almost every aspect when it comes to a small business.

How to Fix the Issue of Late Payments

It’s almost impossible to find the solution that will fix everything. First and foremost, credit terms and penalties must be changed. We’ve mentioned the Tide research before. Their VP of Member Engagement commented on the research: “Perhaps the biggest takeaway from this research is that giving generous credit terms does not improve your credit control. In fact, it mostly has an inverse relationship; the longer your credit period, the bigger the payment delays, and the longer you wait to get paid.” So, making these rules stricter will likely improve the current situation.
Adaptation of new payment methods can limit the negative impact. A company can set up direct debit payments and it will probably make payments easier and faster. But it still requires setting up the payment system which might not suit someone with a small operation. In the end, invoices are easy and there are about a million reasons why people still use them.

But, invoices certainly can be better, more technologically advanced and help a company get paid faster.

Invoicing on Enty: Payment Links, Easy to Issue, Notifications

So, how Enty’s invoicing will help your company to get paid faster? First and foremost, we have released the new feature — payment links.

Payment Link is a URL that leads to a special payment page. On it, your customer instantly completes a payment by choosing one of many convenient methods. Payment links speed up the payment process by letting the recipient pay quickly and easily without having to log into their bank's or financial institution's website.

The significant advantage of payment links is that you don’t have to set up a payment system on your website. Just set up payment links by creating a payment account with our partner and the link will appear on your invoice.

According to the research by MKB Belangen and Stuurjeaccount.nl, an invoice that contains a link for payment via iDEAL is paid three times faster on average. While nearly 40% of private customers complete the payment on the same day.

And while payment links is the main feature that will help you get paid faster, we have more to offer. After issuing an invoice, you can send it to your counterparty directly from the platform. You can also send a reminder to complete the payment directly from Enty too.

The payment date is also identified on the platform to help you identify overdue payments with ease. And invoicing on Enty is just easy, you can create an invoice in a matter of one minute. Together with that, there are no limits on issued invoices.
As you can see, the problem of late payments is huge but again technology can significantly decrease the problem. Manage your paperwork more conveniently with Enty and don’t miss out on opportunities to improve your business. Cheers!
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