Late payment is a much talked about subject and research published in 2014 proves what an increasing issue it is with 57 per cent of small businesses waiting more than 90 days for payment and 72 per cent waiting over 60 days.
Whilst late payment can lead to detrimental cashflow issues, a lot of companies take the decision to not pursue debtors too strongly, concerned about losing their business. But the thing is, staying in control of outstanding accounts with regular reminders is a good way to do business, and most customers will realise that you are simply doing what is necessary to keep afloat.
Chasing debts though should be considered a secondary measure. In fact, it is something that could be avoided for the most part by putting certain processes in place. Here are five such processes that could make all the difference to your business.
1. Get invoices out on time
Issuing invoices punctually, getting them to the right person and indicating any purchase order number or reference will help boost the processing time for your payment. Make sure your payment terms are clearly stated and that the goods or services provided are listed together with the name of the person who placed the order, so that there is no question over what was supplied, for whom, and what is owed.
2. Make written terms & conditions the rule
Make it a rule that you never start a project or supply goods without first obtaining written agreement to your terms and conditions, and to your pricing. Make sure the terms clearly state what is being supplied, the costs involved, and when payment is due. Don’t leave it till you send your invoice to provide terms: it’s too late by then.
3. Be firm about credit checks
Unless you are demanding payment upfront, don’t do business with any new customer until you have carried out a credit check. Depending on the size of the job, you may wish to order paid-for credit searches, ask for bank or trade references or, at the very least, run a check on Companies House to see if there are any registered charges.
4. Look for Evidence of the Prompt Payment Code
The Prompt Payment Code is a voluntary code developed by the Department of Business, Innovation and Skills. It sets out a statement of commitment between a business and its suppliers concerning prompt payment. You may wish to maintain a policy that you only do business with customers who have signed up to this code.
If you are having difficulties with late payments, or would like assistance in putting measures in place in order to avoid them, your bookkeepers will prove a very useful resource.