1. Prioritise sending invoices – it can be difficult to find the time to do all the admin that goes with running a business but making sure you send out invoices on time is really important. If you sit on an invoice for even two weeks and your terms are 30 days, you’re going to be pushed to get the cash in quickly. Sending invoices electronically rather than through the post can also be more efficient – and you can add a ‘read receipt’ so you know it’s arrived.
2. Review your payment terms – talking to other businesses can help you understand what the average terms are for firms like yours, but you also need to consider how it fits into your payment cycle. For example, if you pay your suppliers on 30-day terms but you invoice on 45-day terms, that creates an obvious gap. Also bear in mind that, if you really do need to ensure payment within 30 days, offering 14-day payment terms might be worthwhile. Whilst it can be hard to change existing terms, it’s definitely something to consider for new customers.
3. Invoice accuracy – make sure your invoices are clear and accurate and that the product or service details, payment due date and remittance details are obvious.
4. Consider your payment methods – you want to make it as easy as possible for customers to pay you, so offering easy payment methods, such as BACS, direct debit or card payment options can be useful. Try to avoid cheques wherever possible, so there’s less chance of payments being rejected.
5. Create robust processes – rigorous reconciliation processes can help you identify when payments are made or when they are outstanding. There are numerous software packages available that can even automate some of the more time-consuming aspects of invoicing and book-keeping.
6. Carrot or stick – know your statutory rights when it comes to late payments and the compensation that might be available to you for debt recovery if you’re not paid according to your credit terms. You could also consider offering discounts for early payment or even creating a staged payment option.
7. Build relationships – don’t underestimate the value of relationships with your customers and your suppliers, which may often mean they’ll prioritise your business or payment over others’. At the outset, that could mean doing appropriate credit checks and further down the line, it can make it easier to pick up the phone to discuss any slippage.
8. Review your own payments – you can mitigate the impact of being paid late by managing your own payments more effectively. Card solutions can provide an additional interest-free credit period, as well as offering other benefits such as help with reconciliation and processing.
9. Manage delay – talk to your bank to see how they can support you if late payments are becoming an issue. Short-term overdraft support or products such as receivables finance can help reduce the effect of late payments on your business.
10. Have a plan for dealing with late payments – despite your best efforts, late payments are often unavoidable. It can help to plan to manage those. It could include how many times you chase politely before sending a final demand for payment, for example, or take further action. Before you file a court claim, send a complaint to the Small Business Commissioner – the organisation provides a free service and can help resolve disputes around late and unfair payment issues.
Being paid promptly for the products or services you’ve provided is both essential to keep your business finances on track. Philip King, Small Business Commissioner, explains why the organisation’s role is so important: "For small businesses, cash flow is the difference between survival and failure and through my role I am committed to tackle the issue of late payment and create a culture of prompt payment in UK businesses".
"My team has claimed £7.5 million owed to small businesses and I encourage those affected by poor payment practices to engage with my Office at the earliest opportunity".