Managing the impact of late payments is a way of life for the thousands of UK small firms who trade business to business.
Here are some worrying statistics from The Forum of Private Business:
- Poor payment practice costs UK businesses £20bn every year
- Small firms are each owed an average of £39,000 at any one time
- 1 in 4 businesses go insolvent due to invoices being paid late
As a business owner you need to make sure that you have enough cash coming in to pay your staff and meet your bills. Not everyone pays promptly which is why it’s crucial to have a system for managing, chasing and finally collecting your invoices each month.
We’ve put together 5 simple tips to help ensure your business doesn’t become an insolvency statistic due to late payments:
1) Set clear payment terms
Start off on the right foot by setting clear payment terms for every client. You should make sure that both you and your client understand what work you are doing, how long it will take, how much it will cost and when you’ll be raising an invoice for payment. Whatever your process is, make sure you document it and include it in your terms of work. This is good practice to avoid misunderstandings in the future.
2) Invoice faster- get paid faster
When you invoice quickly you’re giving a clear sign that getting paid matters. It might be a pain, but get in the habit of invoicing as soon as you deliver. If you tend to bundle up all your admin once a month then there could be a significant lag between when you deliver and when you invoice. You might be inadvertently communicating that there’s no rush to pay. Make sure your behaviour matches your terms and be prompt about raising invoices.
3) Schedule reminders
Just like the point on invoicing faster, this is about making sure your behaviour matches your words. Check regularly to see what’s been paid, what’s about to come due, what’s due now and what’s late. Get into the habit of sending a friendly reminder email (or even a phone call!) a week before an unpaid invoice is due, and then again the day before.
By doing this you’re establishing clear expectations and boundaries and reinforcing the message that you expect to get paid on time.
4) Have a process to deal with late payers
Whatever you do, chances are you’ll end up with a late payer at some point. Having a clear process that you follow every time can make this much less stressful. The best starting point is to pick up the phone and talk to your client. Aim to understand why they haven’t paid and to get a clear commitment as to when they’ll settle their invoice. You can explain that you have a standard escalation process, for example perhaps you’ll charge interest on overdue amounts or stop ongoing work until previous invoices are settled. In more serious cases you may even consider getting legal advice or handing invoices over to a debt collection agency. Most importantly make your client aware that you have an escalation procedure and you will follow it.
5) Send a thank you note
No matter when your client pays you, it’s a good habit to send a quick thank you note for the payment. This serves two purposes: it lets you end the job on a positive note, and it confirms that you’ve received payment. In the right circumstances you could also use it as a chance to pitch for more work.
Asking for money is never easy, nor is it anyone’s favourite job. If we had to sum up our advice into a single word it would be this: process. It might sound like hard work but having clear processes that work for you will save you time and energy on chasing your money. Set some time aside, establish tactics that work for you and start getting paid faster!
Emily Trant – Check Business.
Powered by data from Equifax, Check Business lets you see risk and stability scores for UK businesses, partnerships and sole traders.