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Ten tips to avoid late payment

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Figures released by BACS show that more than half of SME businesses (59 per cent) have experienced problems with delayed customer or supplier payments at some time. This number is almost double that of BACS findings in 2004 which showed just a third of SMEs had experienced some sort of delayed payment.

BACS research also shows that the total amount of money owed to UK SMEs is on the increase. Collectively, the average amount of money outstanding to companies with 250 employees or less has rocketed from £11 billion two years ago, to almost £16 billion (£15,994,000,000).

In a bid to encourage good working practices, BACS is stepping up its ‘Pay Me Direct’ campaign and encouraging small business owners to ensure they include their bank account details on invoices and billing statements along with the Pay Me Direct message. The company has created a set of free materials that SMEs can download and use in correspondence with customers and suppliers. BACS has also developed the following Top Ten Late Payment Tips:

10 Tips to avoid late payment

1. Boost cashflow overnight

When you’re paid electronically, the funds are cleared and available for use on the day they're received earning interest immediately as you don’t have to wait for a cheque to clear.

2. Be proactive and chase late payments

Always chase early. A polite call or email can often pre-empt a payment problem. Send a letter to suppliers encouraging them to pay you electronically (whilst it's often used as an excuse, some cheques actually do get lost in the post). Being proactive will help build relationships with your customers’ accounts department.

3. Do your homework - run a credit check

Avoid risks when supplying new customers by running a credit check. There are many associations and independent bodies e.g. Companies House who can provide status reports for a reasonable fee.

4. Demand interest on late payment

Demand interest on late payments – you are legally entitled to it. For information on your legal rights refer to the Late Payment Legislation.

5. Act fast and save money

Our research suggests that transactions made using BACS Direct Credit costs significantly less to process than a cheque payment.

6. Play to your strengths

BACS Direct Credit saves time and money. Why waste time signing and paying in cheques when you can let a highly automated system take the strain? You’re then free to focus on more productive issues.

7. Your customers save, you save

Cheque stationery can be expensive due to the need to prevent cheque fraud. BACS Direct Credit eliminates the cost of cheques and reduces postage and other costs.

8. Better payment terms

Use a reliable payment system and you’ve a good argument to negotiate more favourable payment terms from suppliers

9. You win, we all win

If you get a reputation as a late payer, word will eventually get around. If all businesses use the tools at hand to settle accounts quickly and efficiently, the economy as a whole will feel the benefit with positive spin-offs all round.

10. Be upfront about it

It makes sense to explain from the word go that you actively encourage automated payments. It’s the best way to start any business relationship. Make sure you put your sort code and account number on all your invoices – and print “Pay Me Direct” alongside.

Some valuable advice

Don’t be slow in credit-checking new trading partners. If you knew one was about to go bust would you allow them 30 days credit? Of course not. Also, why not offer discounts for prompt payers as a way of keeping cash flowing?

If you find yourself in dispute over a payment, the onus is on you to resolve it. Write first to bring attention to the outstanding payment, and then follow it up with a call.

If the customer ignores you and fails to formally dispute your invoice, then you could appoint a third party to pursue the debt. The County Court is another option. If the debtor ignores the claim here, you could consider applying for a judgement against them.

Posted November 20, 2006

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