Sadly, late payment is a fact of life now for businesses of every size. More than a quarter of small and medium-sized enterprises in the UK suffer from bad debt to the extent that they have had to write off money in the past year. Non-payment of invoices can occur due to customer insolvency, payment default or dispute, and is especially problematic in industries where costs may have been paid for up-front e.g. in the construction sector.
Managing and reducing the risk of late payment is essential. Indeed small and medium sized enterprises are particularly vulnerable to the effects that late payments can have on cashflow, profitability and ultimately, its overall viability. Late payments can put you out of business. The danger is letting a late payment become a bad debt through inactivity or by continuing to provide goods or services. Even your best customers can let you down, despite their best intentions; they have late payers too! Suppliers need to take action in order to control late payment and so prevent bad debts occurring.
What’s the solution?
Payment Terms: Ensure that you tell your customers about your payment terms – include these on all invoices – and make sure that this is a priority with new customers.
Payment methods: Asking customers to pay by cash, electronic transfer or direct debit (rather than by cheques), leaves little opportunity for payments to be rejected. It also makes it easy for your customers to pay you.
Invoicing: Make sure that you get invoices out to your customers on time – think about ‘e-invoicing’ to save time and money!
Credit control: Set up and implement a robust credit control process and make sure you start chasing as soon as your payment terms allow. Ensure that you have a process – an initial, firm but polite request for payment, followed by gradually more urgent reminders before taking legal action if all else fails.
Customer ID: Research your customers through credit checks so that you can identify any problems early on.
Flexibility: It may pay to be flexible about payment of large amounts. Be prepared to offer say, payment in instalments to give you a better chance of getting paid.
Factoring and Invoice Discounting: Helps to ‘unlock’ the money that is tied up in unpaid bills.
Interest: Late Payment of Commercial Debt allows you to claim ‘statutory interest’ which is 8% above Bank of England base rate for business to business transactions.
By Paul Lee, online business advisor, MiVentures