Late Payments Draining Europe's Economy

The issue of late payments is a pressing concern in Europe, with significant economic implications. According to the EU Payment Observatory, tackling this issue could unlock over €100bn in additional cash flow each year.

Late payments are not only a problem for small businesses, but also for the economy as a whole. In the UK, almost one business every 40 minutes goes under due to late payments, with the issue draining the country's economy of £11bn per year.

Large companies often take advantage of small suppliers by stretching payment terms to 60, 90, or even 120 days, using the delay to prop up their own cash flow. This can lead to small businesses struggling to borrow, as banks view their irregular cash flow as a risky investment.

The problem is structural, as delays become a form of finance, providing an interest-free loan or an "unarranged overdraft" that the supplier never agreed to extend. As a result, business owners spend an average of 86 hours a year chasing unpaid invoices.

However, there are signs that AI is making debt recovery cheaper than ever before. A UK freelancer successfully recovered a £7,000 unpaid invoice in June using an AI lawyer, a win that only cost them £400.

Despite the challenges, there are practical steps that founders can take to reduce the impact of late payments on their business. Here are five ways to get paid without resorting to an AI lawyer:

### Set Payment Expectations Early

Setting payment expectations early is crucial in preventing late payments. This conversation should happen before the contract is signed, clearly stipulating payment deadlines, confirming the accepted invoice format, and including penalties for late payments. Once it's written in black and white, there's no room for argument later.

### Do Your Admin

Ensuring all information is accurate and available is essential in preventing excuses from companies that skirt payments. This includes providing a purchase order number and sending the invoice in the correct format. Sending the invoice as soon as the work is done can also help prevent delays.

### Befriend the Accountant

Humanising the relationship with the people who pay you can make a significant difference. Getting to know the accountant or the accounts payable person directly, preferably over the phone or in person, can help build trust and make it easier to chase payments.

### Offer Early Payment Discounts

Offering early payment discounts can encourage prompt payment. Rewarding early payers by shaving a little off the invoice can reposition the conversation around their gain rather than your loss.

### Know When to Walk Away

Knowing when to walk away from a client who consistently pays late is essential. If a client routinely pays 60 days late, even though they agreed to 30, they're not a good client. You're giving them free financing and propping up their cash flow. Sometimes the best business decision is to stop working with people who don't respect your terms.

Chasing money you earned is exhausting and demoralising, pulling you away from building your business. However, by taking these practical steps, founders can make themselves a harder client to stall while the law catches up.

| **Method** | **Description** | | --- | --- | | Set payment expectations early | Clearly stipulate payment deadlines, confirm the accepted invoice format, and include penalties for late payments. | | Do your admin | Ensure all information is accurate and available, including providing a purchase order number and sending the invoice in the correct format. | | Befriend the accountant | Humanise the relationship with the people who pay you by getting to know the accountant or the accounts payable person directly. | | Offer early payment discounts | Reward early payers by shaving a little off the invoice to encourage prompt payment. | | Know when to walk away | Stop working with clients who consistently pay late, as they're not a good client and are giving you free financing. |