With more companies being left out of pocket for longer periods, here are our 10 tips for prompt payment.
Britain’s small businesses are owed £6.7 billion in overdue invoices, according to Bacs Payment Schemes. That is one in three firms that are waiting to receive their money, undermining their plans for growth and even affecting their survival in the long term.
So that your firm doesn’t struggle with late payments, we have compiled the following 10 tips to help you get paid faster:
1. Do credit checks
Before you even start a working relationship with new customers, find out more about them. Weigh up how much of a risk they pose and conduct credit checks or ask peers about their reputation for settling debts.
2. Change how you work with customers
Arrange a retainer agreement or become their permanent consultant. This can guarantee regular income in exchange for being ‘on call’ or for providing an agreed amount of goods or services on a regular basis.
3. Upfront payments
Incentivise upfront payments with discounts so that you can get a proportion of the total owed even before you start working for the client every month. You may be surprised how many clients cooperate so that they save a percentage of the cost. For existing customers, consider renegotiating their payment terms to offer discounts for early settlement of bills.
4. Revisit payment policies
Discuss payment terms with your clients and ensure the updated terms are clearly specified in all relevant documents, including the invoices. Many businesses are cutting their standard payment terms to as little as seven days, which is a change you can consider discussing with your clients.
5. Make paying easy
Consider using cloud-based software to automatically issue invoices and follow up overdue payments. Digital invoices typically include a ‘pay now’ button so that customers can pay immediately – and the easier you make it for customers to pay you, the quicker they will do it.
6. Automate chasing payments
Consider using a solution such as Chaser, Satago or Fluidly to do the hard workfor you. These apps can send reminders before the payments are due and then chase outstanding invoices if bills remain unpaid.
7. Prevention is better than cure
Using a Direct Debit via a provider like GoCardless means that cash owed is collected from a customer’s bank account automatically, making late payment a near impossibility and assuring cash flow.
8. Have a back-up plan
Have a plan B in case you are left out of pocket so that you can still cover day-to-day expenses and avoid becoming a late payer yourself. Research alternative sources of finance such as extending the business’s overdraft, affordable short-term loans or using invoice discounting or factoring.
9. Maintain the human touch
Tech can do a lot to improve payment processes but keep on cultivating the human aspect of your business relationships. Stay in touch with the employees who handle payments within companies you’re billing, which will likely improve your communication over payments.
10. Once bitten, twice shy
Deal with repeat offenders and follow a strict approach when it comes to handling rogue customers. If you don’t get paid on time, stop working with the debtors. Also think about adding late payment penalties to contracts to dissuade similar clients from paying late in the future.