Running a business can often feel like quite a balancing act; there are so many factors which can impact your success or failure. New social trends, political or legislative changes, variations in the economic climate… they can all affect how your business performs. Of course, the factors determining your business’ future aren’t always so dramatic. In fact, sometimes, a business will rise or fall because of something as innocuous as a late payment.
To your clients, something as seemingly small as a late payment may not feel like a big deal, but with one in five firms being owed more than £25,000 and one in ten, more than £100,000 – a late payment is all too often what ultimately causes small businesses to close.1
Frustratingly, the rest of Europe seem to have made huge headway when it comes to reducing outstanding debt to small businesses. Research by the insurance firm, Zurich shows that in countries such as Belgium, Switzerland, the Netherlands, Germany and Ireland, there has been a dramatic drop in the level of invoices paid late to SME’s. Yet, here in the UK, despite recent EU legislation giving SME’s the right to compensation when invoices are paid late, little progress has been made and it’s estimated that there is still around £44.6 billion in late payments outstanding.
It’s not all doom and gloom however! There are a number of simple steps that you can take to protect your business from the risk of late payments and to ensure that your cash flow remains strong.
Run credit checks
More than half of UK SME’s are currently waiting for overdue bills to be settled. A very simple way to avoid being one of them is to run credit checks on prospective clients before you work with them. By doing this, you can assess their likelihood of paying you – and paying you on time. Credit checks use previous credit behaviour to identify and alert you to any potential risks. That way, you can make a truly informed decision about who you want to work with…. And who you don’t.
Here at Experian Business Assist, our credit reports provide you with complete and in-depth analysis of a business’s credit information, whether it’s your own business or that of a potential customer, prospect or vendor. If you want to make more informed decisions about who you work with, you can start your free trial today.
Set clear payment terms
If you want clients to pay you on time, then it’s important to set clear terms in the first place. Lay out your requirements so that there is no confusion. When do you want to be paid? How much? How often? What will the penalties be for non-payment?
Make sure your payment terms are specific and that your potential clients have seen and agreed to them up front.
Build strong relationships
In business, relationships are so key for so many reasons, but not least because forging strong bonds with your clients and customers will ultimately make them more likely to prioritise your business when it comes to honouring their debts.
Keep lines of communication open with your clients and foster relationships that breed strong payment behaviour.
Make payment easy
Generally speaking, clients don’t miss payments because they want to – they do it because they’re in financial difficulty or because they lack the administrative capability to put processes in place which will ensure timely payments.
Either way, the easier you can make it for your clients to pay you, the more likely you are to be paid!
If clients are struggling to find the funds, then consider more flexible payment options such as installments.
For clients who struggle more with the administrative side of paying, introduce simple payment options such as PayPal. Allowing online payments not only makes life easier for your clients, but it also means that you get the money faster! No more waiting days for cheques to clear.
Have robust credit control processes in place
Now that you’ve done your due diligence in terms of preventing late payments, it’s also wise to have processes in place to actually deal with any late payments that do happen.
If you’ve laid out penalties in your payment terms, then now is the time to ensure that you enforce them.
It’s also time to start chasing any outstanding debts and to ensure that no further credit is given until the amount owed is paid.
This may sound obvious, but it can be surprisingly easy to let late payments go by un-acted upon (and sometimes even unnoticed) if specific processes such as these aren’t put in place.
Make use of cash flow products
With cash flow being such a key driver in the success of any business, it’s not surprising that there are many tools out there to help business owners to stay on top of their cash flow and credit control processes.
Use tools and systems to help you to flag late payments, automate your reminders and manage your invoices. Take a look at Ledger Manager, a tool that takes your sales ledger data and combines it with our credit data to help improve your collection process.
Seek External Support
Lastly, don’t let things go too far. If late payments are starting to hamper your business, then external help is available. You can chat with your own business bank about any options they might have to help you or you can approach one of several financiers who now offer facilities that allow you to borrow against the value of unpaid bills.
As always when you apply for credit, make sure you shop around for the best deals and don’t forget to check your own business report beforehand so that you can be confident of being accepted when you make your application.
Sources: 1 Independent