Keith Tully, partner, offers advice on how to encourage prompt payments from customers.
Late payment of invoices is an ongoing issue for many SMEs. Prompt payment makes a huge difference when trying to maintain positive cash flow, so what can SME owners do to encourage faster payments?
Here are a few tips:
Credit check all new customers
By credit checking new customers prior to offering them credit, not only are you safeguarding your finances, the knowledge that they are a good risk means that you can market to them with more confidence. You’ll have fewer bad debts, a healthier cash flow, and potentially more profits.
Emphasise your credit terms from the start
Include your credit terms clearly on invoices, statements, order acknowledgements and your website. If you make it clear that you’ll be following up on any late payments and will charge interest on overdue amounts, your debtors may think twice about delaying payment.
Invoice quickly – don’t wait until the end of the month
Invoices should be dispatched as soon as work has been completed, or orders fulfilled. You’ll enjoy regular inflows of cash through the business, making it easier to pay your own liabilities as they fall due.
It’s well worth using technology to its fullest by invoicing electronically and allowing your customers to pay online. It will drastically reduce the time you have to wait for payment, and reduces some of the credit control burden.
Use an aged debtors report
This provides all the information you need about the outstanding monies owed to your company. It can form the basis of your collection efforts as it itemises each debtor, how much they owe, and how long the debt has been in existence.
Adopt a reliable collection procedure
Develop a system of communication with your debtors that increases the pressure on them incrementally. This generally begins with a polite reminder, and ends with a threatening letter from your solicitor.
Anything in between should be assertive, and include all the detail needed to allow immediate payment: the total amount owing, date of the purchase order, delivery date and a note of your intention to charge interest on the overdue amount.
Let technology help you to control the problem of late payers
Use accounting software to reduce the impact on your business of late payers. It can provide at-a-glance updates on who has paid, and which debts are still outstanding. You’ll be able to quickly identify which customers are the worst offenders, and take action accordingly.
Late payments can be the death knell for many small businesses if the problem is not addressed effectively. A combination of using the right software, robust credit control practices, and sheer determination, may see your business enjoying increased profits at the year-end.
About the author
Keith Tully is a partner at Real Business Rescue, part of the Begbies Traynor Group, with 25 years' experience in the corporate insolvency sector, specifically advising company directors and stakeholders during times of financial uncertainty.