How To Speed Up Invoice Payments As A Trades Business
If there is one thing guaranteed to keep any small business owner awake at night, it’s cash flow.
According to research data, the average small business in the UK (those with less than £1 million turnover), waits an average of 71 days to get paid.
This trend for late payments is expected to cost the UK economy a massive £2.5bn a year and takes a huge toll on small business owners.
The Federation of Small Businesses says that small business owners waste a whopping 1.2 days per month simply chasing late payments– time that could be spent quoting for a new job on site or using job management software to make your business digital and see off more established, old-school rivals.
What’s worse, late payments cost 50,000 small businesses their livelihood each year.
As a tradesman, you’ve most likely spent more than your fair share of time chasing monies owed to you for jobs already completed.
While this is a clear waste of your time and a burden on cash flow, it could also put your ability to pay your staff and your suppliers on time in jeopardy.
It’s not just the bottom line that you have to worry about either.
Not having a system in place to collect payments efficiently and proactively when a job is done could also impact on your ability to run your trades business – which puts your company and your staff’s roles at risk.
The Guardian reports that,
“…research commissioned by the Prompt Payment Directory(PPD) has found late payments are affecting entrepreneurs personally as well as professionally.
A survey of 1,000 SME owners with cashflow issues found more than a third (36%) have sacrificed their own salary because of late payments, 29% have suffered depression, anxiety, stress and other mental health issues, and one in five (21%) have struggled to pay their mortgage or rent.
Some have even been forced to sell their home or put future plans on hold.”
The good news is that there are measures you can take to reduce that 71 day payment window and get paid much sooner – perhaps even with a deposit or pre-payment when a quote is agreed or there and then when a job is completed.
This is provided, of course, you select the right jobbing software app for your trades business.
The age of cash payments and waiting around for a bank transfer to turn up is still alive but is declining in this digital age.
Most job management apps now have inbuilt links to card processors such as Stripe or Square.
These act like traditional credit card payment processing services like WorldPay but they are free to sign up to, don’t charge a monthly fee and only charge a commission when you actually use their system to take a payment.
Unsure if this will work?
Consider this; when you order something from Amazon, you don’t think twice about paying at checkout.
When you order your monthly shop from Tesco or Sainsbury’s online, you expect to pay when you place your order.
Payment culture is changing and you can use this to speed up your payment process in your trades business too.
Offsetting Processing Cost With The Cost Of Late Payment
Just as you might have weighed up the initial cost of buying an iPad to run job management software versus sticking with paper, it’s well worth looking at the numbers for electronic payment processing.
And by that, we mean just how worthwhile it is to pay a minor transaction fee and get paid right away, on-site, when a job is done.
The cost of that card fee can be easily justified when you consider the time and resources needed to chase overdue payments.
As we have seen, chasing overdue invoices equates to around a day and a couple of hours of your time each month.
When you process a £500 job via a credit card app on your job management platform, you can expect to pay around £7.20 in fees.
That’s the equivalent of one hour’s worth of work at minimum wage.
If that still seems like too high a price to pay, why not review your pricing to factor in that card payment cost?
Lisa Knaggs Hunter has spent 25 years helping small, medium and enterprise clients as a software consultant, Lisa now assists clients with software strategies, online training and one to one consultancy to improve efficiency and profitability.
Today Lisa manages the Software Buddy Team sharing her knowledge helping business just like yours overcome the trials and tribulations of managing projects and clients. Lisa also is a partner in her husband’s small trades business Service Buddy, so she work with trades, staff and job queries every day.
You can connect with Lisa on LinkedIn at https://www.linkedin.com/in/lisaknaggshunter/