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Is Your Mental Health at the Mercy of Your Cash Flow?

As we come to the end of #stressawarenessmonth and at this unusual time with many people furloughed from work, small businesses taking a financial hit due to non-payment of invoices or clients simply disappearing, many people are feeling a lot more stressed than usual.

But, how much impact does poor cash flow specifically have on the mental health of business owners? Even when not in lockdown?

Mental Health and Cash Flow

For many small business owners much of the work-related stress they experience is connected with financial pressures, cash flow and sustainability of the business.

Recent research by Pay.UK (January 2020) demonstrates that there is a clear correlation between cash flow and mental health. Their research shows that;

  • 26 percent of SME business owners stress about late payments
  • 17 percent say late payments knock their confidence in running a business
  • 66 percent say late payments can take the fun out of running a business
  • 9 percent have considered professional help with dealing with late payments

Other studies have shown that small business owners have even blamed late payments for an increasing number of panic attacks, anxiety, depression, suicidal thoughts and angry outbursts.

A 2019 report, from Hitachi Capital UK, showed the situation was even more concerning for freelancers with;

  • 76 percent of freelancers experiencing mental health issues due to late payments
  • 11 percent being diagnosed with a clinical condition due to late payments
  • Freelancers spending an average of 77 minutes a day chasing late payments

The Pay.UK report also shows that these concerns over late payments are not unfounded. In 2019 there was a total UK bill of £23 billion of late payments with 54 percent of SMEs being victim to it. Hitachi reports that 65 percent of freelancers had at least one incident in 2019 where clients were late payers. In the current Covid-19 situation this is likely to be significantly higher, as businesses stop trading or go into liquidation.

Wider Impact

The mental health stresses are not however, limited to concerns regarding payments being made into the business (or not as the case may be) but also the consequences of late payments such as;

  • not paying their own suppliers on time
  • not being able to pay staff on time
  • struggling to pay bills
  • the likelihood of having to cut their own salaries to help bridge the gap

Research carried out by Jessie Hagan for US Bank reported that 82 percent of businesses actually fail due to cash flow problems; the number one reason for small business closures. This is clearly a major problem for small businesses even without the added stress of Covid-19 lockdown.

The UK Government have admitted that this growing culture of late payments inhibits the growth of small businesses and therefore will have an impact on the UK economy. In 2018 they even introduced measures to end the problem of late payments to small businesses – especially from larger companies.

Signs of Stress

It’s quite likely that most of us, at the moment, are displaying some signs of stress, whether business or family related. The top signs to look for are;

  • Feeling of overwhelm – everything is just becoming too much
  • Unable to focus
  • Feeling anxious, worried or scared
  • Trouble sleeping or a general feeling of fatigue
  • Turning to crutches such as food, alcohol or cigarettes

Dealing with the Stress of Cash Flow

Obviously, as individual business owners you are not able to control your clients’ financial situations and their ability to pay you but there are some measures you can put in place in order to lessen the likelihood and impact of late payments.

  • Have a clear set of T & Cs which make it clear what the payment terms and penalties for late payments are. Sometimes late payment is not always due to inability to pay, but just a reluctance to pay in a timely fashion.
  • Have a clear process for invoicing, payments and penalties, and ensure as a business you stick to these processes.
  • Always communicate with your clients – by phone if possible. Knowing why someone can’t pay by the requested date and knowing when they will be able to pay will maintain your business relationship even after the Covid-19 lockdown ends.
  • Act on every excuse you are given, such as requesting the cheque number if ‘the cheque is in the post’ or reminding the client about late payment fees and T & Cs if ‘the accounts person is away.’
  • Consider outsourcing your credit control. This will bring consistency and effectiveness to chasing your invoices.

If you would like to talk about how Confident Cashflow could help your business, why not get in touch.