Getting Paid is a Challenge for the UK’s Small Businesses – It’s Time for Change
For many business owners, getting paid is essential, but it’s almost certainly not the reason they started their businesses in the first place. Managing invoices, chasing late payments, and handling reconciliations? These aren’t the activities that drive entrepreneurs each day. Yet, this is precisely what many small and medium-sized businesses (SMBs) in the UK spend far too much time and money dealing with.
Take, for instance, the Xero Small Business Index. According to their findings, small businesses in the UK experienced an average delay of 7.3 days in payments during the quarter ending June 2024 – the longest delay since September 2020.
These delays are a serious problem. Not only do they affect cash flow, but they also add stress to business owners. Those who received 60-80% of their payments late were 6% more likely to experience ‘cash flow crunches,’ where cash outflows surpass inflows, compared to those who were generally paid on time.
The Root of the Problem: Invoicing
The core issue lies in how small businesses invoice their customers in the UK. Unfortunately, most small businesses rely on one of two methods, neither of which is ideal:
- Manual Invoicing: Many businesses manually create and email invoices with bank details or payment instructions. This buyer-initiated process leaves businesses with limited control or visibility over how—and crucially, when—they are paid.
- Spreadsheets for Direct Debit: Other businesses create large spreadsheets to initiate Direct Debit payments. While this offers more control, it’s far from perfect. The process of compiling the spreadsheet can be time-consuming and prone to errors—one small mistake can result in significant financial issues. It can also lead to unpredictable billing dates, increasing the likelihood of funds being unavailable.
Both approaches lack integration with accounting and billing systems, creating more administrative work.
The Solution: Automation
To eliminate this administrative burden and provide much-needed control, visibility, and predictability, small businesses could use digital payment solutions to automate invoicing, payment collection, and account reconciliation in one seamless process.
However, each small business is unique, and payment issues will vary in their severity and timing. So, how can you determine where and how to make improvements?
Key Questions to Consider
- What is the current state of your overdue debt? Locked funds in receivables negatively impact cash flow and forecasting. As Days Sales Outstanding (DSO) increase, so does the risk of bad debt. Automating invoicing and payment collection can help eliminate delays and streamline the process, improving cash flow.
- What does your accounts receivable process look like? By adopting solutions that provide better control, visibility, and integration in Accounts Receivable, you can eliminate inefficiencies and save time, including the frustration of end-of-month reconciliation.
- Are payments improving or hindering the customer experience? Today’s consumers expect a seamless payment experience. If it’s difficult for your customers to pay you, it could harm your relationship with them and lead to higher churn rates. Making payments easier benefits both customer satisfaction and business revenue.
- What is the total cost of payments? The cost of payments extends beyond transaction fees (which can reach as high as 4% for card payments). Fraud, failed payments, and the cost of recovering those payments all add up. For many businesses, the recovery cost of failed payments can exceed 11% of the payment size.
Moving Forward: From Idea to Implementation
From discussions with small business owners, it’s clear that many recognise the need for change when it comes to payments.
If this sounds familiar, consider how automating your payment processes could reduce stress, eliminate unnecessary admin, and free up more time for you to focus on what you do best, growing your business. After all, that’s why you started in the first place.
Are you looking for affordable pricing and need help with your payments?
At FastPay, we help a multitude of businesses and organisations take care of their payments. From our Direct Debit Managed service and Powerful Integrations to the FastPay Direct Debit Bureau, we’re committed to providing a payment solution tailored to our client’s needs.
Start a conversation with our friendly team today by calling 0161 737 5290 or get in touch online.