A recent survey has found that small businesses spend an average 130 hours each year chasing late payments, and wait 30 days beyond the contractually agreed terms before payment is actually received.
The research, carried out by RBS Invoice Finance, suggests that these two factors – spending time chasing late payers, and the impact overdue invoices have on cash flow – are a persistent threat to the wellbeing of small businesses.
The company has suggested five measures that small firms could adopt to ease the pain of late payment – we have summarised these suggestions here:
Five tips for keeping on top of overdue invoices
1. When working out your cashflow forecast, factor in a ‘worst case scenario’, to establish the impact on your business is all your outstanding payments were not paid for several months.
2. You might consider offering customers or clients an early payment discount, e.g. deduct 5% if you pay the invoice within 14 days, or for an immediate upfront payment.
3. Always clearly print your payment terms on all relevant paperwork, such as your invoices, order confirmations, and contracts.
4. Ensure that you have an efficient plan for keeping on top of any outstanding invoices. Make sure you chase up overdue payments promptly, and ask for an accounts department contact when you first do business with a new client or customer.
5. Invoice finance may be worth considering if you want to keep your cash flow running. In return for a fixed percentage of any outstanding sums owed, an invoice finance company will chase your outstanding invoices on your behalf.
More tips on how to avoid late payment
For more help and advice on how to make sure your customers pay on time, try these handy ByteStart guides;
- Getting paid on time – The 12-Step Action Plan to stop customers from paying you late
- 7 ways to make sure your business gets paid on time, every time
- Collecting overdue payments – a step-by-step guide for small businesses
- What to do when a client refuses to pay or can’t pay
- 10 late payment excuses used by customers – and how to deal with them
- ByteStart’s Guide to insolvency, liquidation and bankruptcy for business owners