There’s nothing more frustrating as a small business owner or freelancer than chasing late payments.
A growing list of debtors is something that’ll forever weigh on your mind, and when you don’t have the luxury of a credit control department to do the chasing, finding the time to get what you’re owed is a challenge.
Late payers can have a catastrophic impact on cash flow, and for many small businesses, it can signal the end. According to the Office for National Statistics, 357,000 firms went to the wall between 2016 and 2017. You don’t want to be another statistic in that group!
Thankfully, there are lots of things you can do to avoid becoming part of the late payment trend and ensure your cash flow remains healthy.
Think about every eventuality
As a business owner, you’ll hopefully have written a business plan, but does it extend to bracing for any potential outcomes relating to cash flow?
The trick lies in not looking too far ahead. Instead, focus on these three areas:
- The worst-case scenario. If sales dip 20%, will you have enough cash in the bank at any one time to tide you over? Can wages, rent, and your own debtors still be paid?
- The best-case scenario. If sales increase 20% higher than you’ve forecasted, what does that mean for the business? What can you really do without putting its future in jeopardy?
- The ‘what if’ checklist. Prepare a list of potential hurdles you might encounter in the future. These could range from a critical supplier going under to a natural disaster. How will your business react? There are contingency planning experts around so find one and get some good advice.
The three areas above don’t refer to late payers, but they all relate to how prepared your business will be to react to any issue that might significantly impact cash flow. Revisit them regularly.
The more prepared you are for the best and worst case scenarios, the better chance you’ll have of preventing debtors from spoiling the party.
Make your payment terms crystal clear
Nearly every business undertakes an assessment before agreeing to work for a customer.
This usually consists of an initial discussion followed by a quote that outlines the fee for services required. Crucially, it should also include a note of how long the customer has to pay.
That payment period is entirely up to you, but make sure it’s crystal clear in all paperwork from the outset. The amount of interest you’ll charge for late payers should also be firmly in black and white.
If you don’t specify a payment term, the default is usually 30 days, but bear in mind that some purchasers (particularly the big boys) often have their own terms which can be as long as 120 days.
Make sure your invoice game is strong
Invoicing plays a vital role in minimising the number of late payers a business has.
Take your time and make your invoices as clear as possible when it comes to payment terms.
An accurate, prompt invoice that contains all the relevant information agreed initially stands a far better chance of being paid on time than something that has been rushed out.
Make the most of modern accounting technology
One of the best things about today’s accounting platforms is that they make managing debtors more simple.
If you’re yet to implement this technology, now is the time to embrace it. Making Tax Digital (MTD) has arrived and is pushing businesses of all sizes to adopt new accounting packages that are compatible with HMRC.
With this software in hand, you’ll be far better equipped to deal with late payers, due to the fact you can:
- quickly submit digital invoices to customers;
- offer user-friendly, convenient ways to pay; and
- send automated late-payment reminders.
You can do this in real-time and, with most packages, from the palm of your hand, thanks to smartphone compatibility. It’s secure, too, thanks to the data residing safely in the cloud and permanently backed up.
Things are looking up
Thanks to new technology and a desire from the government to address the issue, late payments are becoming harder to justify or get away with.
Use our tips above to ensure your debtors reduce in number and present very little threat of damaging your business.
If you need more specific advice about handling bad debtors, please get in touch and we’ll do our best to help you