Top Tips for SMEs to Tackle Late Payments

Recent data from Alpha Pro Partners compared the financial performance of SME clients from 2021 to 2022. It revealed that, on average, the companies’ revenues increased by 27%, while their gross profit increased by 17.6%. This is an excellent indication of the overall financial health of SMEs in the UAE. However, the challenge of accounts receivables is worsening, with unpaid assets growing by 24.8%. While late payments are a widespread issue for firms of all sizes, lack of cash flow is one of the main reasons small businesses fail. The situation can also negatively impact employee well-being and the founder’s mental health.

6 Tips for SMEs to Tackle Late Payments

Rather than feeling powerless, there are many ways SME owners can be more proactive and push for timely payments. Smaller organizations have several advantages in the current climate, and better cash flow will put them in a stronger position to seize the opportunities available.

Steps to reduce the likelihood of late payments include:

1. Check your contracts

Check your contracts

Never start a job without first getting a legal contract. If you don’t have this in place, you won’t be able to protest nonpayment or escalate it through the legal system. You must also be prepared to demonstrate that all work has been completed and deliverables met as defined in the agreement.

2. Specify favourable terms

You could seek an upfront payment, a partial payment in advance, or a shorter payment window, depending on industry standards. Don’t overextend yourself, and always issue invoices on time.

3. Understand the customer’s payment process

Understand the customer’s payment process

Different businesses have different internal policies; find out what they need to make the process go as smoothly as possible so you know what to expect. Do you, for example, need to issue a purchase order and put it on the invoice? Who should the invoice be submitted to, and what are their authorization procedures?

4. Communicate regularly

After sending an invoice, phone to ensure that it was received. When it’s past due, send a reminder, followed by another phone call if necessary. Maintain respectful communication, but don’t be discouraged from following up; tenacity can often move you up the list. If you prefer not to engage with a client on financial concerns directly, your accounting companies can assist you with the follow-ups.

5. Utilise technology

Utilise technology

Accounting automation is one of the simplest methods to reduce time, enhance accuracy, and increase cash flow. The best small company software will handle financial activities automatically, such as preparing and sending invoices, sending regular reminders, tracking spending, and displaying a clear picture of outstanding payments. Using the pay now functionality is another approach to expedite the process and provide the client with numerous payment options.

6. Know your legal options

If you believe you have exhausted all internal options, you may choose to consult with a third party, such as a debt collection agency or a law firm. The competent lawyer will be able to advise you on the severity of the breach, as well as the best paths for reaching an amicable conclusion and settlement. They will also advise you if legal action is warranted.

About Alpha Pro Partners

Alpha Pro Partners, a customer-focused accounting firm launched in the UAE in 2017, is on a mission to help entrepreneurs achieve their business goals. It offers outsourced accounting and bookkeeping services, as well as Xero implementation for in-house accountants. The firm is the largest Xero Platinum Partner in the GCC and focuses only in Xero (one of the world’s largest, most user-friendly, and cost-effective cloud accounting software systems for SMEs). It has also lately expanded its portfolio to include outsourced HR services in order to provide more cost-effective assistance to SMEs.

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