Being embarrassed to chase business payments is a common problem and one which can cause serious cashflow problems which may result in the business failing completely.
Business owners and their accountants can be driven to sleepless nights worrying about late payments. A study carried out by Bacs Payment Schemes Limited (Bacs) revealed that 78% of SME owners are being forced to wait one month or more beyond their agreed terms before they are paid.
In total, it was found that the UK’s smallest businesses are facing a current bill of £6.7bn, up from £2.6bn in 2017, just to collect money they’re already owed.
Late payments not only causes stress, they also have a knock on effect on suppliers connected to the business. In the same study, over a quarter of SME business owners experiencing late payments were forced to pay their own suppliers late, with 28% saying they had to cut their own salaries in order to maintain the business.
It is a British trait to be embarrassed about asking for a payment. Many business owners and accountants fall into the trap of suffering in silence, too awkward to push for payment. But the effects are far reaching and clearly have significant negative multiplier effects on the wider economy.
Below we discuss ways to avoid late payments and ensure that cashflow is one less thing to worry about.
Don’t just ‘bill and forget’
The “out of sight, out of mind” attitude is a dangerous one. It is easy to forget about an invoice once it has been issued to the customer. To instil a strong level of customer service, make sure to call your customer before any invoices are due as a reminder.
Chasing debt on email is not proactive enough. A phone call followed up instantly with an email reiterating the payment terms covers all ground.
You should ensure that the terms of payment are clear from the beginning, and don’t be hesitant to reiterate this point. Define them verbally to the customer at the start and keep them visible and consistent on every invoice after.
Don’t be scared to ask
Remember it’s not rude to chase money that is owed.
It is often left in the hands of the accountant to chase payments, which can eat into valuable time and resources. Never leave it too late. Chase as soon as the payment is overdue to ensure it doesn’t get completely forgotten about.
All staff within the business should be trained in the same way regularly so there is a consistent approach when dealing with late payments. Any professional practice should maintain the same level of service across every department.
In relation to the customer, from the outset credit control must be outlined as part of their journey to avoid late payments as much as possible.
Know your customer
Always carry out the necessary credit checks prior to onboarding a new customer. This will quickly determine whether they have had trouble making payments in the past. This shouldn’t be solely reserved to new customers either. If you have suspicions about an existing customer’s ability to pay, double-checking their current situation may provide you with invaluable insights.
First-hand experience in dealing with a customer can also provide you with knowledge which no amount of checks ever could. When is a good time to approach the customer? When are they uncontactable? How do they prefer to interact? As you build a picture of the customer you will soon learn what the approach is.
Get professional help
After a while, chasing payments will start to take up precious time and resources which should be spread across other areas of the business.
This latest research, from the people behind Direct Debit and Bacs Direct Credit, shows that the cost of recovering overdue money is now at an average of £9,000 for each business per annum.
Accountants are experts at dealing with financials. Their time should not be spent chasing customers for invoices. That’s why hiring a credit control specialist may prove to be a prudent financial move which takes the pressure away from the accountant and allows them to do what they do best.
There are many common excuses for late payments, and a good credit controller will have heard them all before and know exactly how to respond. If a business doesn’t have access to a good credit controller, they should seriously consider using one, as being paid on time is vital to the survival of any business.
By Jenny Oldfield, CEO at Veritas Commercial Services