Tips to help you avoid the late payment trap

With larger companies being named and shamed as the main culprits of late payment according to recent research from the Federation of Small Businesses (FSB), Bibby Financial Services is urging small business owners and managers to take precautions now to avoid falling into the late payment trap.

Typically taking up to 64 days to pay invoices, delayed payment by larger companies can cause a ‘make or break’ situation for many small businesses.

Bibby Financial Services has developed the following tips for good financial practice, which will help entrepreneurs avoid becoming the victim of late payment.

Tips to avoid late payment problems

• Credit check potential customers – while it is tempting not to check a new customer’s credit history, to save time, it is vital to carry out these necessary checks to ensure your customers are able to pay you for your goods or services
• Terms and conditions – designed to protect your rights, limit your liabilities and provide you with some security, terms and conditions need to be clearly stated on all relevant documentation to both existing and new customers
• Payment terms – these need to be set at the beginning of a relationship with a new customer and followed up with written confirmation, this way every party knows where they stand
• Invoice on time – send invoices immediately if you don’t you can’t expect to be paid on time. Clearly address the invoice to ensure it reaches the correct person along with when the payment is due
• Crystal clear communication – keeping on top of regular communication with your clients and suppliers is key. Follow up invoices with a call to confirm receipt and advise clients of any outstanding payments
• Keep clear documentation – keeping clear records and having a good filing system will ensure you are aware of payments due and are able to keep track of them
• Understand your rights - if you have a long outstanding payment, consider charging the client interest. As a small firm, the law gives you the right to charge interest on all late payments owed to you. The rate you can charge is the Bank of England base rate, plus eight per cent
• Review credit checking procedures – aim to run credit checks on your existing clients on a bi-annual basis to ensure their financial situation has not changed
• Encourage fast payment – encourage your customers to pay on time, offering early payment discounts if they pay within a certain credit period
• Consider the finance options – services such as invoice finance can boost a firm’s cash flow by raising finance-based on the value of sales invoices, paying up to 85% of those invoices as they are raised. The invoice financer will also chase outstanding payments on your behalf