How to handle late payments

Getting paid faster is one of the topics I frequently address during my talks for smaller firms of accountants.

There are some basics that may need addressing - perhaps it's not been necessary to focus on these before. Here are my 3 top tips:

1 Review your standard terms. - Why give 30 days credit? Why not move (especially for newer clients) to 14 days or even 7 days?

2 Enforce your standard terms. - Let clients know that you'll have to down tools if your fees remain unpaid. I wonder how much credibility an accountant has as a business adviser if not practicing good business habits him/herself?

3 Be wary of new clients' credit worthiness in the current climate - Seek either payments on account before you start work (I do) or at least a signed standing order authority before your start work. Why risk giving away your time and advice to a stranger without an assurance of payment? As I explain to those accountants who engage me for mentoring or business coaching, if i didn't practice what I preach what credibility would I have?

Mark Lee
Tax Advice Network

Essentially, this problem is all about power in the market place. If you are a business, whether a supplier of goods or service or both, users will pay you promptly if what you are offering is essential to them and they cannot purchase the goods or services from another supplier.

If you are one of many suppliers offering goods or services which are commonly available and, as a result, you are jostling for trade... well, hard luck, matety! All you can do in that position is to have terms and conditions in your business contracts which state when payment must be made. The problem with that course of action, of course, is that users (or should that be abusers?) move their buying accounts to those 'eager beavers' who will be more liberal about when they get paid, doing so to get business and in the hope of obtaining larger orders in the future.

I have been surprised when I have phoned the odd supplier of goods and services to whom I have said that I am imposing a contractual change, being that payment will in future be made in 90 days (instead of, say, 7 or 14 days). The usually somewhat dopey person at the other end of the phone will invariably say: 'Ohh...? Oh, yes, that's fine. Yes, okay.' I follow up in writing to confirm that a contractual variation has been agree. Easy-peasy!

For many businesses, late debtor payment is the biggest threat to their existence by exerting a great pressure on the company’s cash flow.

While 40% claim that a limit of 20 days for settling invoices would ensure their survival through the recession, they must face up to many customers taking longer than 60 days – a trend that is becoming increasingly common today.

Overcoming the challenges this so-called ‘late payment culture’ provide should now be SMEs’ primary ambition over the next few months, and invoice finance offers the best way to do this.

By releasing cash against debtors, your business could access up to 85% of the sales ledger value within 24 hours of an invoice being issued, boosting your cash flow and freeing up capital for day-to-day operations.

Factoring further provides expert credit control to save you the time and hassle associated with chasing overdue debts, while a non-recourse facility will additionally provide credit insurance to protect against debtor non-payment either through insolvency or protracted default.

A financial brokerage can identify the solution that best fits a business’ needs, and Hilton-Baird’s independence will ensure access to the right facility on the market.

Visit www.hiltonbaird.co.uk for more information.

SME owners need to take control of collecting customer payments during this economic downturn and address financial processes: The gulf between those with healthy cash flow and those sweating over debt is a paper versus electronic payment issue. The roll-out of Faster Payments, allowing almost ‘real time’ electronic funds transfers (EFT), will widen that gulf even further if businesses don’t adopt an IT solution now.

The cost of processing a cheque is around ten times that of an EFT, with longer clearing times at the bank making a late payment even later and exacerbating cash flow issues for both parties concerned.

Electronic payments save so much time and resource – it’s difficult to understand why any SME would choose to receive cheque payments. Investing in simple software allows businesses to set up secure, validated EFTs. Business owners can take control of when they are paid; they don’t need to rely on customers to pay on time because the software does it for them. According to recent Bacs research, the average SME spends 38 days a year just chasing late payments of £30,000 and overdue invoices of just £20,000 can cause bankruptcy.

This is the twenty-first century and yet astonishing numbers of SME owners are still entrenched in using unnecessary, archaic processes that could cost them their businesses.

Yours sincerely,

Adrian Stafford-Jones
Managing Director
Albany Software
http://www.albany.co.uk

Tel: +44 (0)1420 547620 Fax: +44 (0)1420 547621
Post: Albany House Albany Software Ltd, Albany House, Omega Park, Alton, Hampshire, GU34 2QE

A lot of useful info here.

I recently received a statement frtom a company with ageing of the debt under headings current/30/60/90/120 days. Mine was current but it was sending a message that I might be able to get away with 100 days. Personally I prefer "current" and "overdue"

Late payers often raise queries late, which delays the whole process. Phoning BEFORE the debt is due can be a good idea to check that everything is in order and to check that payment is coming in.

As regards big customers unilaterally extending terms. There is a school of thought that unilaterally withholding supplies can concentrate the mind, even small suppliers can disrupt a big company iin certain circumstances. Quite frankly it is difficult to advise this for fear of armageddon, but perhaps it should be considered in certain circumstances eg: when the supplier's viability is seriously threatened, particularly where the customer can't easily replace the supplier.

Also there are internal issues that can be considered when businesses reach a ceratin size. I've previously brought in KPIs to monitor debt collection performance and looked at the role of sales people etc in the process.

David Lewis

Camrose Consulting