As the UK looms headlong into recession the effect on small businesses could prove fatal for many owners of small businesses. Inflation is at a 40 year high and the pressure of the increasing cost of living adds more pressure to small business owners. If you have cash in your account, you should spend it wisely, and if you are cash poor spend it even wiser as the ability to borrow money at current high interest rates can worsen the outlook for your business. Borrowing money to keep your business afloat through the tough times in recession may seem like a good option if you can obtain finance at a reasonable rate, but you have to be mindful of what happens if the funding runs out and you can’t borrow any more. Managing your cashflow during a recession is crucial to the health of your business.
In a recession keeping your clients happy is very important, but only if those clients are willing and able to pay you promptly. If you don’t have a contract with your clients or any terms and conditions confirming when and how you can expect payment, you should consider incorporating payment terms into a new contract.
Over 40% of companies do not check the creditworthiness of an existing or new client. That can prove fatal if the client is not creditworthy or worst still, trading insolvently. Over 60% of small businesses struggle to get paid on time. Approximately half of all invoices issued by small businesses are paid late, so it is important to offer your clients as many different ways they can pay such as cash, bank transfer, card payment, PayPal and secure online payment links. You would be surprised to hear though that many businesses still use cheques.
The Government legislation on late payments is worth reading up on. It costs nothing, and may prove useful if you are struggling to get your invoices paid on time. Sometimes the threat of adding late payment fees and/or charging interest on your unpaid invoices is enough to prompt your clients to pay sooner so they don’t incur fees and/or interest. If you are struggling to obtain payments from clients, you can use the Government platform Money Claim Online to issue County Court Claims to recover your money. There are fees to pay to use the service and success is not guaranteed. If you do not wish to issue a County Court Claim yourself you could instruct a debt collection agency to manage the process for you for Claims under £10,000 or a solicitor for Claims over £10,000.