Simple strategies for SMEs to tackle late payments 

Author: Rayhan Aleem, founder of Alpha Pro Partners shares how small businesses can take more control over collections

SMEs represent more than 94% of total companies in the UAE, employing over 86% of the private sector workforce (Ministry of Economy 2019). With such a crucial role in economic growth, Rayhan Aleem, founder of the accounting firm Alpha Pro Partners, is keen to help small business owners overcome one of the main problems that can lead to early closure: a lack of cashflow caused by late payments.

Alongside the financial implications, payment problems can also take their toll from a well-being perspective. In a UK survey conducted by the accounting software provider Xero, 44% of small business owners said that late payments have affected their mental health, 43% had sleepless nights worrying about cashflow, and 29% would be more productive if they weren’t worried about finances. 

According to Rayhan: “Payment delays are a widespread issue for companies of all sizes on a global level. However, the effects can be particularly devasting for small businesses. It’s good to see governments taking measures to tackle the broader problem but it’s also important for SME owners to know what steps they can take themselves. Rather than feeling powerless, there is a lot they can do to be more proactive and push for timely payments. Smaller organizations have several advantages in the current climate and better cashflow will put them in a stronger position to seize the opportunities available.”

Simple ways to create a more positive payment experience:

1. Check your contracts – never start work without a signed contract. If you don’t have this in place, you won’t be in a position to challenge non-payment or escalate it through a legal process. You also need to be prepared to demonstrate that all work has been completed and your deliverables fulfilled as outlined in the agreement. 

2. Specify favorable terms – depending on industry norms, you could request an upfront payment, partial payment in advance, or a shorter payment window. Don’t overstretch yourself and always ensure you issue the invoice on time.

3. Understand the customer’s payment process – different companies have different internal policies; check what they require to make the process as smooth as possible, and you know what to expect. For example, do you need to raise a PO and include it on the invoice, who should the invoice be sent to, and what are their steps for authorization?

4. Communicate regularly –After you send an invoice, call to check that it has been received. Then, once it’s overdue send a reminder followed by another call if necessary. Keep communication polite but don’t be intimated or deterred from following up; being persistent can often put you higher up in the queue. Your accountant is also there to help with the follow-ups if you prefer not to deal with a client on finance matters directly.

5. Utilize technology – automating your accounting is one of the easiest ways to save time, increase accuracy, and improve cashflow. The right small business software will automatically handle finance tasks like creating and sending invoices, sending regular reminders, tracking expenses, and presenting a clear picture of outstanding payments. Taking advantage of pay now functionality is another way to speed things up and offer the client flexible ways to pay.