Top tips for managing debtors and late payment

Back in July, the Federation of Small Businesses (FSB) said that big organisations were unashamedly making small firms wait over 100 days before getting paid, often changing payment terms with little notice.

A survey of FPB members also found that 82% of businesses were seeing an increase in the number of customers that are paying late.

A few months later and with no end in sight to the economic downturn, late payment problems are inevitably becoming more widespread.

Here are some golden rules for dealing with debtors during a downturn and ensuring that you keep on top of your cashflow management. These tips were penned by the ICAEW's Head of SME Issues, Clive Lewis.

Top tips for managing debtors

1. Know your customer and make sure they are able to pay their bills by getting a credit check on them. This might seem like looking a gift horse in the mouth but a debtor becoming insolvent owing you two to three months’ work will create a big hole in you finances for something which costs £20 or so.
2. Agree payment terms before you supply. If they intend taking 60 or 90 days to pay you should find out before starting the contract and make a positive decision to take the work or not and figure out how you will manage until the debt is paid.
3. Invoice accurately clearly and promptly. Make sure you know to whom and where to send invoices and what detail they must contain. Raise invoices as soon as the work is completed and don’t wait until the end of the month. This can result in the customer processing somebody else’s invoices in front of yours.
4. Don’t be afraid to ask for payment. Telephone shortly after you send your invoice and progress the invoice through the customer’s invoice payment system noting who you speak to and what is said in conversations. Monitor payment performance closely and complain if promises are not kept.
5. Discounts for prompt payment can be worthwhile depending on your need for the payment. The danger is payments slip and they still take the discount, meaning that it is effectively a price reduction.
6. Factoring and invoice discounting can help finance increasing sales. Customers must be creditworthy and you must be prepared for the additional checks and procedures which come with this sort of finance. On the plus side you are likely to get more finance than from a conventional bank loan or overdraft.