01/05/2015

By Rachel Mainwaring, UK Operations Director, Creditsafe UK


Cash flow is vital for all organisations and managing it is one of the most challenging aspects of running and growing a business. Cash flow turning cold, through disruption such as late payments, is one of the biggest contributors to company insolvencies, so fine-tuning your invoicing process to cut out potential causes of payment delays is critical.

Following a few simple steps can help you receive prompt payments.

- Getting your invoicing process straight

What you do during the invoicing process will determine how your clients pay you throughout the life of your relationship. To ensure customers take paying you promptly seriously, you need to pay attention to the little things. These tips can set you up for invoicing success:

Establish creditworthiness. You wouldn’t do business with an individual before finding out who they are and it should be the same for when you do business with a company. Credit checking a company to see if it is creditworthy is a good place to start. Utilising credit reports allow you to do this effectively as they give you an understanding of the company you’re about to do business with and how well they pay their bills. With each report you can see exactly whether they are who they say you are, check the company’s credit rating and also its payment performance history. The information found will then allow you to tailor your own credit terms to the customer.

Offer many payment channels. Let customers pay with credit cards, online payments, direct debit, cash or BACS.

Send invoices in a timely manner. One major reason for slow payment is that invoices are either late or inaccurate. The sooner you ask, the sooner you’ll get paid, as you can’t start the clock on payment until the invoice has been received. Issue your invoices up front, along with a product or service at the point of delivery, or at the very least on a regular basis (such as at the end of each month).

Ensure that you get invoices right the first time. Build in time for you or your accounts team to check that all invoices are accurate so that there are no excuses for slow payments. Simple things like the correct address and order number (if required) will help speed up the payment process.

Include VAT in your invoice. Creating an invoice isn’t just about getting your company’s information right; you have to remember to collect VAT as well.

It’s worth remembering that raising credit notes and reissuing invoices takes up resource and time that would be better spent elsewhere. Credit notes also change payment due dates. Ask customers what they want invoices to include before you send them so that they can approve payment without any delays.

- Anticipating problems before they arrive

Very rarely does a payment problem occur without warning. If you pay attention to certain warning signs, payment issues won’t catch you off guard and cash flow will not turn cold. It’s crucial to know your customers and to keep in constant communication with them. It’s also vital to be completely aware of who your slow payers are, where the risks lie, and what steps you can take to guard against bad debtors. Once you know this, you know the areas to avoid.

- Creditsafe’s top tips

Call your customers before the payment due date to make sure that the invoice has been received and there is no query. This is good customer service and avoids potential problems further on down the line.

Revisit credit limits. You need to assess credit limits on a regular basis. In addition to consulting third-party credit reports, use your own experience to build a more detailed picture by factoring in information on how well they pay you and other people.

Reinforce tight credit control processes. The easiest way to manage credit control is to use a calendar or software package that lists when invoices are due and highlights missed payment dates. Also, make sure you have a system for resolving disputed invoices promptly. Customers can tend to withhold payments until the smallest of queries are resolved.

Make sure communication is legally watertight. One of the biggest problems that SMEs create for themselves is to take on customers without establishing a legally binding contract. This does not pay off in the long run. Make sure payment terms are agreed in writing, and you may also wish to consider a clause in the contract that allows you to charge interest in the event of late payment.

A relationship with a customer isn’t a one-off transaction. It should start with a credit check at the beginning of a contractual relationship, but should also involve a constant review of payments against agreed terms & conditions.