According to a recent survey by Starling Bank, microbusinesses are spending a whopping 19 per cent of their time on admin, translating to around 15 hours per week.

The upstart UK online bank surveyed more than 1,000 small enterprises across the UK intending to find out how they spent their time. While the majority of the time drain was rendering services to clients, a disproportionate chunk of it was spent dealing with company finances.

As you might suspect, small enterprises were the most affected. Those with the fewest staff spent more than 25 per cent of their time chasing up invoices and complying with HMRC rules. Sole traders wasted a whopping 31 per cent of their week on rote financial admin tasks. And twenty-seven per cent of microbusinesses told Starling Bank that they spend too much time on admin and would divert it to other areas such as sales if they could.

While regulatory burdens are a problem for UK businesses, the biggest issue is late payments from clients. Data from Dun and Bradstreet found that customers owe the average small business more than £80,141, with around 17 owed between £100,000 and £500,000. Small companies, sole traders and microbusinesses, therefore, must spend a considerable chunk of their time chasing up late payments and ensuring that their clients pay. It is a drain on their resources.

Overdue invoices aren’t just an annoyance: they can create cash flow crises. When a client doesn’t pay on time, it impacts practically every aspect of the business, squeezing budgets and putting wages at risk. In some cases, the delay can put such severe strain on firms that it must postpone paying suppliers and workers, undermining its operational capacity. Thirty-one per cent of companies in the Starling survey said that they had experienced cash flow difficulties as a consequence of late payment. Forty-eight per cent said that overdue payments put their company at risk of failure.

Late payments, however, don’t just put businesses at risk: they also put a strain on the personal finances of owners. While most executives will refrain from ploughing their resources into their limited liability companies, they often will when the viability of their firm is at risk. Failing to do so would mean years of wasted work and effort. Most owners do the only thing that they can and draw on personal reserves until the crisis passes.

The government is well aware of the fact that microenterprises are struggling with the issue of late payments from clients, and it is taking limited actions to resolve it. The Prompt Payment Code, for instance, is a tool that the government wants organisations to use more in their dealings with small businesses. The Federation of Small Businesses is also looking at ways of making data publicly available on the worst late payment offenders. The government, however, is one of the worst offenders when it comes to late payment and, unlike private enterprise, doesn’t rely on its own clients.

Private lenders are also trying hard to do their bit. We’ve seen the emergence of a range of products, including bridge loans. Firms in desperate situations can also sell their accounts receivable to third party agencies who will then attempt to follow up clients and collect the money themselves, extracting a fee for the privilege.

The best strategy for microbusinesses, however, isn’t to wait for assistance from on high that may never come. Instead, it is to take matters into their own hands and improve their financial robustness and payment collection capacity.

Here are some of the strategies recommended by experts across small business, accounting and banking.

Assign Unique Credit Policies To Each Client/Vendor

Microbusinesses should approach the problem of risk in much the same way as banks or insurance firms. Instead of applying a blanket credit policy to all clients and vendors, they should treat each on their merits. If a customer behaves well, pays on time, and doesn’t break the contract, he or she should get a higher credit limit. If their record is weak, then microbusinesses should cease providing services until the vendor coughs up the money.

Plan Cash Flow Better

Microbusinesses also need ways to ensure that they better manage cash flow so that they don’t find themselves running into trouble if a client pays late.

In general, there are two approaches here. The first is to set out the expected payment schedule for the year and then ask what would happen to cash reserves if a client failed to pay. Would you have sufficient funds to cover all your expenses?

The second is to implement policies that make punctual payment more likely. Things like having clear invoice deadlines and early payment bonuses can help tremendously in this regard.

Explore Third-Party Lending Arrangements

Another option is to use third-party lenders to provide temporary liquidity while you wait for incoming payment. It might seem outrageous to have to go to a lender to get money in lieu of what clients owe you, but sometimes it is the only option.

Most clients ultimately pay what they owe, and lenders know this, so the fees are minimal. These loans are also flexible, allowing you adjust to your needs.

Use Business Data Solution

The final tool at your disposal is business data solutions. These products attempt to provide you with analytical insight into which types of client don’t pay on time, giving you advanced warning. The use a range of data concerning outstanding debts, liens and creditworthiness and then provide you with an output you can use when making contract decisions. If a company has a poor history of paying vendors, you might want to insist on weekly payments upfront.

Summary

If cashflow is proving to be an issue for your business, check if you’re eligible for a cash flow loan. You can borrow between £10k and £200k and pay back between 1 and 5 years.

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