More than a third of SMEs have no idea how much they are owed in unpaid invoices, according to figures from Bibby Financial Services.
In a survey, the organisation found a worrying 36% of SMEs simply do not know how much they are owed at any one time.
But those who do keep a track of their credit shed more light on the scale of the issue – 31% are owed over £20,000, 14% are owed over £50,000, and 6% have invoices worth more than £100,000 outstanding.
And in the hospitality industry the problem is particularly rife, as two thirds of SMEs do not keep track of their total owing invoices.
Bibby FS chief executive officer David Postings said: “Having a robust credit control process in place, and being able to chase invoice payment, is the key to effective cash flow management, which is critical for any business.
“But many small businesses – particularly those with few or no employees – cannot effectively manage outstanding payments because they are focused on developing new business and fulfilling existing orders.”
It’s the typical Catch 22 situation for SMEs, who must strike the right balance between generating income by winning new orders, and actually receiving payment for the work already done.
But with cash flow frequently referred to as the ‘life blood’ of small businesses, a failure to keep on top of credit control could be costing firms more than just the value of the initial invoice.
“These outstanding invoices could be reinvested into businesses in the form of recruitment or technology,” Mr Postings explained.
“Small and medium-sized businesses are the backbone of the UK economy so this represents a significant threat to long-term economic growth.”
By making effective credit control a priority, small businesses can stand to benefit in several different ways.
First of all, there’s the obvious advantage of actually getting paid for work done – a moral prerogative in addition to being good business practice.
There’s the reputational benefit of being seen to take action on non-payment, helping everyone from sole traders to fledgling firms to put a professional face forward.
In terms of cash flow, there’s a better chance of being able to service any of your own invoices, debts, stock costs and so on.
You’re put in a more robust position to deal with any unexpected one-off expenses, by drawing on your company’s cash reserves.
And you have the maximum amount left over to invest in innovation and future growth.
Taken altogether, these five general advantages of good credit control form a compelling case for SMEs to wise up, work out what is owed, and make sure customers pay up on time.