As a business, you may have seen an increase in sales during the festive season – which is great news – until your customers are late making payments, and your cash flow suffers as a result.
It’s common for people to overspend at this time of year. Many focus on buying gifts for their loved ones, often prioritising presents overpaying off outstanding debts.
December can therefore be a challenging month for businesses. Online shopping may reduce in-person sales, your own invoices might be due, and income can take a hit if you close for the holidays. Add to that the extra financial strain of parties, bonuses, and holiday pay, and the picture becomes even more complicated.
Data from the Department for Business and Trade commissioned research (1), states that ‘some businesses pay late on purpose. 18% of surveyed businesses suggested that late payments are driven by their business customers purposefully paying late, treating it as a form of ‘free finance’.’ This suggests that even generous payment terms may be at risk of being exploited.
Meanwhile, the Registry Trust reported a 13% increase 2 in County Court Judgments (CCJs) registered against businesses, with the average value per CCJ reaching £2,136. For consumers, 224,152 CCJs were registered in one quarter alone, totalling a staggering £463 million – a 19% increase from the previous year.
The last thing you want is for your customer’s business to fail in the New Year before you’ve been paid. To protect your cash flow this Christmas, it’s time to take proactive steps. Take a look at my top five tips below:
- Write a list, check it twice
Start by writing a list of all your outstanding debts and following up on them right away. Going forward, a great preventative measure is to ensure you get to know your clients. Consider carrying out credit checks for new and existing customers, especially if you’ve had difficulty obtaining payment in the past. A credit check can highlight whether your customer might struggle to pay due to their own financial issues.
An account application form is an excellent tool to gather important information about your customer from the outset. You need to know exactly who you’re contracting with so you can pursue the correct entity later if necessary. It’s also wise to perform a free check of the Insolvency Register before offering credit and, for a small fee, more detailed credit checks can provide additional insights.
Tis the season to make paying simple
The easier it is for clients to pay, the more likely they are to do so. Consider offering multiple payment options such as card payments, BACS, direct debit, or PayPal.
Be proactive about collecting payments. Implement late-payment penalties and collections policies and ensure that you stick to them. Keep records of all correspondence with clients, including emails, call logs, and proof of delivery. These records can be crucial if the matter escalates to court.
If appropriate, consider offering early payment incentives. While applying discounts might seem counterintuitive, it’s often less costly than recovering a debt later – and it ensures the money is in your pocket sooner rather than theirs.
- Avoid the nightmare before Christmas
Avoid the stress of unpaid invoices by putting clear procedures in place. Set up systems to send standard letters or reminders the day after an invoice is due, at seven days overdue, and so on. Automated processes can help you stay consistent without adding to your workload during the busy holiday period.
- Stuff your stocking with cash
If your business is facing cash flow issues, be sure to keep a ‘cushion’ of at least three months’ operating expenses. This buffer can protect you from unexpected setbacks caused by slow payers or reduced seasonal income. Bad payers are an unfortunate reality, but careful financial planning can prevent one slow month from turning into a disaster.
- Deck the halls with Legal protection
If you need to recover unpaid debts, there are legal safeguards to help cover the costs.For commercial debts, the Late Payment of Commercial Debts (Interest) Act 1998 allows you to charge interest at 8% above the Bank of England base rate. Additionally, the Late Payment of Commercial Debts Regulations 2002 and 2013 provide compensation ranging from £40 to £100, depending on the debt’s value.
If a lawyer or debt collection agency is involved, you may be able to recover those costs too. However, once the matter goes to court, the recoverable costs will depend on the claim’s type and value.
Even if a debt is eventually paid, you can still claim late payment interest and compensation up to six years later.
With a bit of preparation and a few safeguarding measures in place, you can enjoy the festive season knowing your cash flow is secure. Let’s make this a Christmas to remember – for the right reasons!
Sources
Late payments research: understanding variations in payment performance and practices across business sectors and sizes (HTML executive summary)
Registry Trust Ltd Q3 2024 Statistics