Now we are in the middle of an economic downturn, one of the most important things small companies should do is to keep a firm control on their cash flow.
Many a sound company has gone under simply because of poor cashflow management.
Unfortunately, small firms are often at the mercy of customers, clients and suppliers and late payment problems are only expected to get worse as the downturn continues.
There are many steps you can take to improve your chances of getting paid on time.
Here are five essential late payment tips, with links to a wealth of further resources on the site.
Before you do business, you should always check the credit-worthiness of your clients. The ICAEW recently pointed out that small companies should run regular credit checks, as the current economic environment is so unpredictable.
A ‘good’ client could become a ‘bad’ customer overnight, so you might also want to set credit limits.
You should clearly outline your payment terms before doing business with anyone. Most experts recommend that your organise your billing schedule and invoice at the earliest opportunity.
If suitable to your type of business or industry, you could offer better sales terms for prompt payment – for example offering a 5% discount of future orders if payment is made within 30 days.
Facilitate easy payment
It may sound obvious, but make it as easy as possible for people to pay you. Provide your business bank account details with each invoice, make it very clear who customers should write out cheques to, encourage the use of standing orders if customers have regular payment schedules.
If you are internet-enabled, you should also consider accepting PayPal, or if customers would prefer to pay with credit cards, why not register with Google Checkout for a cheap way to take card payments online.
Managing Late Payers
You must put in place a good payment chasing process – starting off with a polite request for payment, and getting steadily more assertive until payment is forthcoming. In a small number of cases, you may have to threaten court action.
It is worth keeping an eye on your customers’ payment trends, so that you may spot potential problems before they develop into something more damaging. Be wary of these common late payment excuses and know how to deal with them.
If customers are becoming increasingly hard to contact, or cheques are suspiciously delayed, it may be beneficial to investigate further.
Our credit control guide, 7 ways to make sure you get paid on time, every time will also help you.
It may suit you to assign all your invoices to a third party. The invoice financier will advance you a percentage of the invoice value and give you peace of mind that your cash flow will remain unaffected by any late payment issues.
Invoice finance providers will charge a percentage of the invoice value for providing this service.
To learn more about invoice finance, start with our guide; What exactly are invoice finance and factoring, and what benefits can they bring to my business?