Small businesses have taken the brunt of the pandemic, with many SME’s struggling to survive through restrictions and lockdowns. With the threat of permanent closure hanging over their heads, the mental health of small business owners is also low, and support is desperately needed to help them weather the covid storm.
One thing that is making the situation worse for SME’s is late payments. Sinead McHale is the CEO of Satago, the platform that provides automated credit control, risk insight and invoice finance to business owners and their accountants. Here, Sinead shares her thoughts on how risk insight and credit control technology can help small business owners avoid the devastating effects of late payments.
There has been much debate about the long-term effects of lockdown on small businesses, but conversations rarely touch on the emotional toll the pandemic has taken on individual business owners.
For the average small business owner, the line between personal and professional life is blurred. Many have invested their own savings in their business and bear the brunt of the pressure when cashflow issues occur. For this reason, late payments put an enormous strain on small business owners. If a creditor pays late, they will often dip into their own pockets to cover staff salaries, putting their own financial and emotional wellbeing at risk.
As the pandemic took hold in March 2020, large corporations protected their interests by withholding payment from smaller creditors. In the words of the FSB’s National Chairman Mike Cherry, unscrupulous larger businesses attempted to “inoculate themselves from the impacts of COVID-19 by freezing payments at the expense of small businesses.”
Research suggests that this practice has created a culture of fear amongst entrepreneurs that could have a lasting impact on our economy. A survey from the Corporate Finance Network suggested that by June last year, 9% of small business owners had decided to liquidate their companies due to anxiety over future finances. Whilst research from Pay.UK found that one in ten business owners have considered seeking mental health support as a result of being paid late.
SMEs employ 16.3 million people in the UK, that’s 60% of all jobs. If the stress of late payments continues to grind small business owners into the ground and dissuade young entrepreneurs from starting new companies, the results could be devastating.
Updates to the Prompt Payment Code don’t go far enough
In January this year, the Government announced updates to the Prompt Payment Code. The required payment period for suppliers has been cut from 60 to 30 days and the CEO or Finance Director of participating companies will now be required to sign personally, ensuring accountability lies with business leaders.
Whilst these changes are welcome, they will not be enough to turn back the tide on late payments or relieve the pressure placed on small business owners. Signing the Prompt Payment Code remains optional and the responsibility for collecting interest fees on late invoices still lies with individual SMEs. The Government has floated the idea of giving the Small Business Commissioner powers to issue fines to corporations who continuously pay suppliers late, but this legislation has not been forthcoming.
With £23.4bn currently owed across the UK in unpaid invoices, business owners need more than empty threats to protect themselves from bad debt.
How fintech can help small businesses take back control
Fortunately, advances in fintech have given SMEs access to tools that can actively protect them from the threat of late payments. One example of this is risk insight software, which gives business owners the opportunity to vet potential customers based on their credit score and payment practices.
As large corporations face increasing financial pressures, it’s crucial that small suppliers run credit checks on clients before agreeing to payment terms that could put their business at risk. Modern credit checking tools provide an overview of a client’s financial position at the touch of a button, giving business owners the clarity they need to protect themselves from customers who may not have the ability or inclination to pay up when the time comes.
In addition, automated credit control tools can relieve much of the stress associated with chasing invoices. According to smallbusiness.co.uk, the average SME spends an hour and a half each day chasing customers for payment. By automating this process, business owners can ensure they’re putting effective credit control processes in place without compromising their time or energy.
If there’s one thing the past few months have taught us it’s that the mental health of small business owners matters, not just from a social perspective but from an economic one. By taking advantage of technology, business owners can take back control of their finances and alleviate some of the pressures that can make being an entrepreneur stressful. Giving them the chance to focus on growing their business and playing the part we need them to play in building back our economy.