Late payments, unpaid invoices and consequent cash flow challenges are a crippling burden on the global economy. In the UK alone, SMEs are still waiting on some £61bn in unpaid invoices - and this is only worsening, with 26% of companies being hit by even more late payments due to the rising cost of living, as reported by Barclays.
It's not just cash flow challenges that are debilitating businesses. As reported by Business Money, poor payment practice also wastes time, with UK SMEs losing an average of 56.4 million hours a year chasing late payments.
Therefore, it's unsurprising that the UK government has moved to tighten its Prompt Payment Code in a bid to make larger companies pay smaller enterprises on time. Yet, despite this and the fact repeat offenders are being increasingly named and shamed - and that according to Barclays 58% of adults would boycott a business if they knew they were a late payer - the crisis continues to wage on.
With so much at stake, businesses need to take matters into their own hands. Below, we explore some of the essential steps you can take to tackle late payments and unpaid invoices, and how Dun & Bradstreet can help you to avoid the worst offenders.
1. Supercharge your credit decisioning process
Running credit checks on new customers is essential before extending them credit. The process needs to be watertight, and this is where automating decisions can increase protection against bad debt by determining decisions with data - leading to a more consistent process that's free from bias.
However, not all data is created equal, so it pays to work with a third-party that can provide comprehensive business data. When combined with financial analytics that includes proprietary risk scores - such as D&B PAYDEX® and D&B® Delinquency Scores - insight is gained into historical payment performance, the likelihood a business will pay in a delinquent manner or cease trading altogether.
2. Build closer relationships with customers
Beyond simply increasing your protection against bad debt, automating credit decisions also frees up valuable business time that can be spent building closer relationships with customers. That's not to say closer relations alone will make customers pay on time, but regular communication - such as letting them know when you're issuing invoices or providing flexible repayment options - can go a long way to ensuring payments are met in the agreed timeframe.
3. Stay on top of the macro picture
Change is the only constant in today's business landscape. So, you need to be aware of how factors, such as the ending of government support, can cause companies to default on CBIL/BBIL loans (for example). It's therefore imperative to have multiple views of businesses, including real-time banking data and scores that will alert you in real-time of potential risk. In turn, you can act before situations escalate and impact your bottom line.
4. Set unique terms for each business
Every business is different. So, when it comes to defining credit terms, having the right insights and analytics at your fingertips is vital to ensure you're extending the right amount of credit, to be repaid over the right period. Modern credit teams are increasingly using tools with inbuilt ratings, such as Maximum Credit Recommendations, that suggest the greatest amount of credit you should extend based on a historical analysis of similar companies - which is not necessarily the maximum amount a company can afford.
5. Streamline invoicing and payments processes
Establishing credit terms is one thing, getting paid is another. So, anything you can do to make the process more efficient will always help to alleviate this process. Invoicing and of course payment is an important part of this. But rather than depending on manual, paper-based processes, the automation of e-invoicing and payments - from the presentation of an invoice to the customer making payment via an online portal - creates a single platform for all documents, communications and interactions, leading to better customer experiences.
6. Elevating accounts receivable (A/R) processes
Credit teams often prioritize collection efforts based on the oldest and largest amounts outstanding. If done manually, this can be a tedious process and this strategy doesn't consider capital at risk or accounts that are more likely to pay late or default on payment. Instead, a collaborative and comprehensive automated accounts receivable (A/R) management platform - with a rules-based strategy engine - can identify disputes, report reason codes and expedite resolutions to prioritize high-risk accounts, making the collections process far more efficient.
Tackle late payments and unpaid invoices with Dun & Bradstreet
The late payment crisis is a very real burden on businesses around the world. It's an issue that keeps thousands of entrepreneurs up at night, and one that has worsened amid the pandemic and knock-on effects like inflation.
Overcoming it won't happen overnight. But there needs to be more responsibility on behalf of governments and big corporations to abide by the Prompt Payment Code. However, as we've established, with the right tools and processes, businesses can also strive to take matters into their own hands.
D&B Finance Analytics is a purpose-built platform, featuring Credit Intelligence, to help finance leaders transform their credit operations and address late payments through the power of insight and automation.
Give it a try today to see how it can help your business to navigate risk and improve cash flow.
Intelligent, flexible and easy to use, D&B Finance Analytics combines powerful insights and technology to help finance teams manage risk, increase operational efficiency, reduce cost and improve the customer experience.
