Every business, regardless of position in the supply or service chain has a different way of working, with varied sets of customers and priorities.

All of them, however, are at the mercy of accounting.

At Xero, we recently conducted research that discovered business owners spend an average 10 per cent of their day (equating to an entire two days per month!) chasing late payments, with an average having to wait an extra 14 days before invoices are settled.

Furthermore, more than half (52 per cent) of small business owners in the UK worry about unpaid invoices.

There are other numerous reports of big businesses behaving poorly when it comes to late payments.

In fact, there’s more than one online forum dedicated to naming and shaming big businesses and acting as a ‘hall of shame’ for poor payment practice.

This is worrying for small businesses, and even more so for startups.

It’s not uncommon for a fledgling company to suddenly find itself involved with a big business, recruiting more staff to execute the work, and then struggling to cover the payroll when left waiting months for an invoice to be paid. This is due to sheer bureaucracy, extended or missed payment terms.

Research from the Institute of Directors last year found that two thirds of the UK’s small and medium-sized companies received late payments from the businesses they supplied.

As a solution to the issue, an advisory board has been set up in the UK to enforce a Prompt Payment Code.

Administered by the Chartered Institute of Credit Management, the industry-led initiative sets standards to pay suppliers on time, provide suppliers with clear guidance, and encourage good practice.

Aims of the code include: 

• Introducing a 60 day maximum payment term, and enshrining a 30 day payment term as a norm for all signatories as standard practice
• Creating a Code of Compliance board to enforce the Code, including its maximum payment term
• Requiring small and medium-sized signatories to report annually on their payment performance, on a comply or explain basis, and for large signatories to report on their payment practice and performance in line with the new statutory reporting requirement
• Increasing the number of references needed to validate membership
• Promoting and strengthening the Prompt Payment Code  

Supported by Barclays, RBS and HSBC, this is a step in the right direction, and something small and medium sized businesses across the UK can get behind.

Additional to the Prompt Payment Code, there are many things that you can do as a business owner to avoid late payments and improve cash flow.

Here are my five top tips:

1. Invoice promptly: The sooner you invoice, the sooner you’ll receive payment. It’s vital to get your invoicing process right from the start so that it is efficient and pain-free.

2. Establish a relationship: Introducing yourself to the people in the accounts departments of the companies you are invoicing can often make a difference. At the same time, ask them to include your invoice number as a reference with every payment they make, to help you determine which invoice is being paid.

3. Keep accurate records: Keep track of the time and materials expended on a client’s project and make sure you invoice for everything. If you record the work done as you go, it saves you trying to remember the details at a later date.

4. Define your payment terms: Consider shortening your invoice payment period to encourage your customers to pay sooner, even to one or two weeks. If you make your best efforts to supply your products and services to your clients’ deadlines, there’s no reason why they shouldn’t try their best to pay you just as quickly.

5. Offer easy payment methods: As a general rule, when you make it easier for your customers to pay, they’ll pay sooner. Some accounting software offers a ‘pay now’ button on online invoices, which means you can send customers invoices online with the option of getting paid instantly.

If you make your best efforts to supply your products and services to your clients’ deadlines, there’s no reason why they shouldn’t follow suit.

Gary Turner is the co-founder and UK managing director of accounting software firm, Xero