Are you juggling the accounts side of your business whilst wearing many other hats? Is your credit controller coming up against some dead ends?
We appreciate how difficult it can be to ensure your clients settle their accounts. Getting paid within your set payment terms can be even harder. 30 days become 40, 50, 60 and beyond and understandably you start to feel a little nervous…
You are not alone! It was reported that in 2016, 61% of invoices raised by small businesses to big businesses were paid late, with an average value of each late payment equating to over £6K.*
At Business Rescue, we are not insolvency practitioners – our aim is to keep you in business, helping you over any hurdles that have got in your way. With that said, here are our 5 tips on how to get your invoices paid… on time.
1) Accounts Software
To be in complete control of your business finances you need some form of accounting software that enables you to monitor and track financial activity at a glance. Paper-based systems are too unreliable and inefficient, especially if you’re trying to keep on top of bad payers. A good accounts software system will clearly show you when invoices are due and when they are overdue, enabling you to resend payment requests at the touch of a button. Accounts software really is a wise investment, even for the smallest of companies. If you’re unsure who owes what, then you’re unable to chase payments confidently and professionally, giving your clients an advantage when it’s you that needs to be ahead of the game!
2) Credit Checks
You wouldn’t lend a stranger £100 just because they told you they’d pay you back, would you? You’d want to know more about them – their background, their reliability and their trustworthiness. You must take the same approach to credit accounts. Take the time to credit check your clients before setting their credit limit and payment terms. Don’t feel obliged to dance to their tune – whilst it’s great to have a new client on your books, it’s of no use whatsoever if they don’t ever pay you. Terms can be reviewed further down the line if the clients prove themselves to be credible.
3) Payment Terms
Setting your payment terms cautiously is a sensible strategy. Once you’ve credit checked a new client you can choose the level of credit you’re prepared to offer them and your terms of business. Whilst 30 days is a common period of time to allow an account to be settled, your cash flow and risk must be taken into consideration with each individual client. Pro-forma terms could be sensible for the first few transactions, or taking a deposit payment for larger invoices could provide you with some added protection too. Your payment terms need to reflect your client – not your business. You don’t need to extend the same terms to everyone. Consider the risks and set your terms accordingly!
4) Reminders
Don’t sit back and wait for your clients to pay you – make sure you remind them ahead of their invoice due date that their payment is imminent. Often late payments aren’t intentional; they are simply due to poor admin procedures, forgetfulness or lack of time. A simple, politely worded reminder can reduce your late payments significantly. Set a policy that is consistent – maybe send your first reminder 7 days prior to the payment date, your second reminder 3 days ahead and a final prompt on the actual due date. Include a copy of the original invoice with any reminders to eliminate any excuses.
5) Get Tough
When erratic and late payments from your clients start to impact your business then it’s time to get a bit tougher! We’re not talking about ‘sending the boys round’ – there are other ways to professionally add some weight to your polite requests! Putting accounts on credit hold is one way to force overdue payments to be settled if your client still requires goods or services from you. Adding late payment penalties is another way to encourage timely payments – no one wants to pay more than is necessary, so imposing late payment charges certainly incentivises clients to put you at the top of their payment schedule. Be firm but fair… fellow business owners should respect your position.
If you find that your business is facing financial difficulties, due to bad debts or any other reasons, and you’re struggling to see a way forward, then the expert team at Business Rescue can assist. Our experienced and professional advisers are able to discuss and analyse your individual situation, offering solutions and guidance to move your business forward.
Contact us to arrange a free, no-obligation initial consultation.
* Source: Federation of Small Businesses – Late Payments Report 2016
