In any small business, cash flow is crucial. It definitely pays you to stay on top of the cash you are owed. If any of your debtors are slow to pay, you need to do something about it.
First look at your payment terms and make sure they have been clearly set out and cannot be misunderstood. This can go a long way towards ensuring that you get paid on time. In the UK, you can also make it worth while for your customers to pay on time by imposing a small extra percentage fee for late payers.
You need to have a policy about credit so that you don’t take on any risky customers. Run a credit check before handing out any goods or services to new customers that do not pay up front. Your policy should also make sure you set realistic credit limits for each of your customers and review them regularly.
Run debt management reports from your system weekly, so you can see where any problems lie. If your payment terms are not met, act quickly. Don’t let the debts build up or go on too long without your intervention. Get on the phone and remind them about it straight away.
With good communication in place, you should be able to judge whether the customer can make staged payments, as this kind of agreement is better than not getting paid at all. You also need to decide whether to continue to supply such customers. Find out the true reason for the delay and these decisions will be easier to make.
Once a payment is over 60 days late, it is time to get really serious. You might consider calling in a debt recovery agency. You will certainly need to review the credit status you allow the customer.