A report published last year by Banks automated clearing system (Bacs) suggested that half of all SMEs are experiencing late payments and waiting an average of 28 days beyond agreed invoice payment dates.
Poor cashflow is the biggest reason businesses cease trading, so we’ve put together ten key tips on chasing late payments.
1 Know your customers
Running credit checks on new customers may sound underhand but it could save you valuable time and money in the future. It’s now possible to run quick checks online. This isn’t confined to new customers – if you have reason to suspect an existing customer may have problems paying their invoices, checking their situation may also be prudent.
2 Be clear about your payment terms
Make sure your payment terms are included on every invoice you send and keep them consistent. Additionally, outline your terms verbally to new customers. Be clear about timeframes, costs associated with late payment and acceptable payment methods.
3 Avoid cheques
Encourage customers to pay using cash, electronic transfer or Direct Debit. hearing ‘your cheque’s in the post’ won’t help your cashflow.
4 Choose the right people
Make sure people on your credit control team are equipped for the task in hand. They should be firm but polite, resilient and organised. It’s also important that they enable, rather than impede, future sales.
5 Make a courtesy call
If you’ve issued a customer with a large invoice, call them up before payment is due to make sure it has been received and there is no query. This is good customer service and pre-empts any possible delay in payment.
6 Start chasing right away
Don’t delay in chasing a late payment from the day after it was due. The longer you leave it before you contact your customer, the further down the queue your invoice will drop.
7 Claim interest
You have a statutory right to claim interest on late payments at 8% over the Bank of England base rate. Additionally, you can claim compensation for debt-recovery costs. Letting your customers know this as early as possible may encourage payment.
8 Be flexible
On large, outstanding amounts be prepared to offer flexible payment terms. Whether this means regular installments or simply splitting a bill into two manageable chunks, in some circumstances it may be your best chance of payment.
9 Don’t let the problem escalate
If you haven’t received payment, stop supplying the customer immediately. If the customer needs your product or service to run their business, cutting the supply may be exactly the leverage you need to secure payment.
10 Use a debt collection agency
As a last resort, employ a debt recovery agency to act for you. Agencies will often work on a no recovery no fee basis, however if the debt is large the percentage commission can be substantial.
By Gareth Underwood, of Sage software
- To find out how Sage can help with your finances call us on 0800 44 77 77 or visit sage.co.uk/finances