Late payments – a big concern for small business owners! In an ideal world, all businesses would be paid on time, or even early, for their products and services. And while there are some people out there who are diligent in their payment efforts, sadly there are a lot more who aren’t. This results in late payments, which can cause a lot of problems for SME’s. In fact, research from the Prompt Payment Directory has shown that small business owners are often ‘struggling financially’ as a result of chronic late payments from customers. To make matters worse, a further 23% of SME’s are actually facing bankruptcy and liquidation as a result of late payments. So how can you avoid late payments, and make sure you get paid on time for your hard work?
Identify Problem Customers
If you’ve been running for a while, then you will likely have a few years’ worth of data to look back on. This means that you can look back and see exactly how many late payments you had, and which customers were responsible. In some cases, there may be one off’s that are unavoidable, but in others you might start to see a pattern forming – the same culprits cropping up again and again. Those ‘serial late payers’, who always have an excuse for delaying payment. If you want to cut down the number of late payments you suffer, then you need to take a serious look at those customers and really consider if they are worth working with again. Is the amount of energy and money you spend chasing their late payments worth the value they are bringing to your business? Or would you be better saying goodbye to them, and focusing on gaining new clients who will pay you on time? If they are worth the hassle, try to think of ways you could encourage them to pay on time – including offering rewards for prompt payment, or renegotiating their contract.
Encourage Customers To Set Up Direct Debits
You would be amazed by the sheer number of people who, despite knowing that they need to pay the same amount for the same service at the same time every month, forget to actually process the payment. Recurring payments are a pretty big source of late payments across the country – but they don’t need to be. If your customers are on recurring contracts with you, the direct debits are the perfect way to put a stop to late payments. There are a few ways to do this – either through basic direct debit instructions, or by using a service like Go Cardless to manage them for you. You can even offer a slight discount to any customer willing to pay by direct debit! By switching your customers onto direct debits, you don’t ever need to worry about late payments for recurring invoices again. Even if the client forgets about the payment, it will be automatically transferred into our account. Many businesses have reported that their late payments dropped significantly after this one simple change.
Review Your Terms & Conditions
Terms and conditions are the binding contracts of any business. They’re your legal fail safe – the safety net you can rely on to catch you if things start to go wrong. For a lot of smaller businesses, the terms and conditions don’t actually need to be used that often, which is no bad thing. But that does mean they can be forgotten, and if they aren’t kept up to date they can cause you a few headaches. So, take a look at your terms and conditions. Are they up to date? Do they align with your business? And have you been implementing them fully? A lot of businesses have a clause about late payment interest charges, but very few actually follow through and use it. If you’re staring guiltily at your feet right about now, you probably need to update your T’s&C’s, and then put them into practice.
Track, Chase And Report Late Payments Promptly
Finally, another reason a lot of businesses experience late payment problems is because they aren’t very on the ball when it comes to monitoring payments. You should be ensuring your invoices are sent on time, and you confirm that the customer has actually received the invoice. Keeping track of who has paid and when is essential, and the second an invoice is overdue you should be sending reminders out to customers, with regular follow up contact to establish when a payment will be made. This isn’t just good practice – it demonstrates to your clients that you are proactive with your accounting, and that they won’t be able to get away with not paying you and hoping you won’t notice.
Late payments are one of the most common issues for business owners across the country, and yet many don’t have basic systems in place to prevent them. At Accountwise, we specialise in helping start-ups and micro businesses improve their payment rates and stamp out late payments in their customers. By providing practical advice and support, our customers can enjoy running their business without having to constantly worry about being paid on time. For more information, just get in touch with us today and arrange your free consultation.