How to deal with late payments
A number of our clients have been telling us that they are owed money at the moment, which can have a considerable impact on cashflow and impede even successful businesses. Business Control’s Richard Starkey offers his tips for dealing with this frustrating situation.
Research by the Federation of Small Businesses shows that close to one in three (30%) business owners have seen late payments of invoices increase over the last three months.
The new study of more than 1,200 business owners also finds that 8% of businesses have been experiencing other forms of poor payment practice. And ultimately, approaching one in ten (8%) business owners say late payment is now threatening the viability of their business.
So, here’s how to tackle it:
1) Keep a close eye
Make sure that one of your business KPIs (Key Performance Indicators) is a record of what’s known as Days of Sale Outstanding (DSO). This will provide you with a clear overall picture of your payment situation. For example, are you achieving your DSO within 20 or 30 days? If so, that’s not too bad. If not, you need to take some action.
At Business Control, we have a traffic light system and a weekly debtors’ report. When a case is marked orange, that means it’s time to get the account manager to contact the client.
I would also suggest that any late payment over 90 days is a big issue. Anyone should be able to sort a payment out in three months, and if they can’t, it’s indicative of a wider problem.
2) Remember your relationships
When looking at your internal reporting, identify the customers who are late and talk to the team member who looks after them.
By asking your internal team member, who already has a relationship with the client, to get on the case, rather than the finance team, it’s far more likely that the client will respond better and the issue will be resolved relatively quickly.
3) Be clear about your expectations
On all of your invoices, make it plain what your terms are. Is your deadline 30 days? Why not bring them down to 20 days to provide your business with more breathing space? Either way, make it very clear from the get-go.
And, depending on the type of business you have, you could ask for an upfront payment. Or alternatively, staged payments (where you take multiple payments during the course of your interactions with that client). This is also a convenient way to stay on top of things.
4) Be thorough
Get into a habit of sending regular statements to your clients recording what has been paid, what’s outstanding, etc. Or if you have more of a personal relationship, a quick email will do.
At Business Control, we sometimes call our clients before an invoice is due to make sure it’s with the right person, and that all relevant information has been received.
After that, if the invoice is late, constant chasing is key.
5) Be ready for reconciliations
If there are queries over an invoice, be sure to deal with reconciliations early. It might be a misallocation, for example. Check and double check to make sure you have the details right.
Also, if a payment has been received from a client, but it’s not clear to you what it covers, ask them sooner rather than later.
6) Don’t be afraid to go to court
There is only so much hassle you can put up with. And if you’re going to take a business to court, it’s essential to make sure you have all comms involved to hand so that you can show that you’ve given them a warning letter, and another, and then a court threat. Get your ducks in a row.
This is just my opinion, but it’s often not worth passing it on to a third party such as a debt collection agency. You’ll have all the information and the contacts already, and rather than hastening a solution, it can add an even greater delay.
7) Last ditch
If, after all, you decide that a debt is no longer collectible, at least you can write the VAT off. It’s a small mercy.
Final thoughts
The other side of the coin of course is how quickly you can pay your own suppliers. This affects cashflow too. You’ll, of course, want to treat them fairly and you’ll want to maintain relationships. I personally pay as close to date due as I can, but not before.
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