01/07/2014

By John Holden, Tinderbox Working Capital,

Despite countless calls for change and the introduction of various codes and charters to address the problem, late payment continues to be one of the biggest issue facing small businesses today. Indeed it seems to be getting worse with a survey from the Federation of Private Businesses showing that 23% of its members reported an increase in late payment over the past year compared with just 3% who reported a decrease. And if you consider the figures involved you can see why it’s such an important issue. Last year the CBI reported that businesses across the UK are owed a staggering £30bn in late payments, with the average firm left £31,000 short.

With the Government due to report back later this year on the findings of a consultation on ways to tackle late payment its clear the debate will rumble on for some time. But in the meantime what can businesses do to help themselves? Here is some advice:

1. Start as you mean to go on: It’s much easier to have a discussion about how you’ll handle late payment before it actually becomes an issue. You should provide all customers with a copy of your payment terms at the beginning of any contract and ideally keep a signed copy on file – but an email acknowledging the terms is also useful.

2. Be an efficient invoicer: Administrative tasks have a habit of slipping down the ‘to do’ list, particularly if you don’t have someone dedicated to the task. But maintaining cash flow is vital so invoicing must take priority. Send out invoices promptly and include a detailed breakdown of the activity undertaken or products provided to head off any potential queries. Each new invoice should have its own unique reference and check that all the details are accurate before you send it out. Having to re-issue invoices because of simple mistakes is frustrating and will delay payment. Chasing late payment costs typical business 130 hours a year so do all you can to minimise hold ups.

3. It’s all about contacts: When you start working with a new customer make a point of finding out the most efficient way of submitting your invoice. Do they want to see it first for approval or should you send a copy direct to the accounts department? Is there a reference or order number that should be included that will enable it to be processed more efficiently? It’s also worth asking the name of the person responsible for accounts payable so that if you do have to chase up the payment you know exactly who to speak to. If you are dealing with a persistent late payer it may be worth discussing new payment terms or staggered payments. Being flexible can help ease the pressure on both sides and helps to maintain a positive relationship with your customer.

4. Have a system: Set up a system for dealing with late payment so that it’s handled consistently and efficiently. Keep track of when each invoice is due and have a pre-determined timeframe for following up and chasing payment. It’s worth starting with a quick call on the due date to check that the invoice is being processed. If payment is not received following that then the first action should be to issue a statement reiterating what is owed. You can then follow this up with another phone call, and then a letter. Alternatively there are any number of payment apps and programmes available that will not only help you keep track of your invoices but will even send out automated reminders on your behalf. Having a system in place means that late payment doesn’t go unnoticed and can also take some of the angst out of the process.

5. Don’t be afraid to chase: European legislation sets a default maximum of 60 days for payment unless otherwise agreed, with penalty fees and interest charges for unpaid bills but smaller companies are often reluctant to challenge larger customers. In fact since 2008 just nine formal complaints have been bought. Even so, don’t be put off and don’t just hang in there hoping it gets paid. A healthy cash flow is at the heart of every successful business so put your late payment process into action regardless of the size of the client.

Late payment is a very real part of business today and it’s a problem that isn’t likely to go away anytime soon. Putting simple processes in place and adopting a focused attitude to chasing up the money owed can go a long way to help manage the problem, limiting the impact on your business and protecting your relationship with clients.