If you own a small business, or indeed a business of any size, you will be aware of the impact that late payments can have on the running of your company. The impact can be especially challenging for SMEs, which rely on each and every payment to continue trading as normal. With late payments becoming a rising problem in the UK business sector, you'll likely have encountered this yourself at least once or twice. Maybe more. You may wonder how to stop late payments affecting your business - and we are here to help.
Read on to discover some vital tips for how to reduce the amount of late payments you receive, and how to handle this difficult situation when it does occur.
Why do late payments happen?
A business transaction can seem pretty straightforward - so why would anyone end up missing a payment? The truth is that this can happen for a number of reasons. Larger companies often have staff reshuffles which can lead to payments being missed or dropped, and smaller companies may be struggling with cash flow issues and delaying making payments. Individuals can simply forget to make payments - it happens. But every time it does, your business can suffer. While flexibility and great customer service are fantastic assets for any business, you don’t want to be taken advantage of and lose out financially in the process.
Work with trusted clients
Perhaps this is an obvious idea, but you should try to work with clients who you have researched and who have a good financial history. Working with trusted clients is a good way to easily ensure that they pay on time. Reliability is key here, and it will give you one less thing to worry about later on. While you are not always in a position to pick and choose every client from a curated list, working with reliable clients and having clear and honest discussions from the outset of your business relationship can help you to get those payments on time, every time.
Enshrine payment terms in a contract
When sending out your invoices, you will have a standard document that all your clients receive. You should bear in mind that an invoice is also a proof of your contract with your client, so the language you use on an invoice really matters. Remember to put your terms of payment at the bottom of your invoice to give a time frame wherein the invoice must be paid - this is usually within thirty days of the date the invoice is issued, though this may vary based on your specific circumstances and the service you provide.
For ongoing projects and larger clients, it may be worth having a contract drawn up specifically for this so that you can have complete clarity about the amount and date of payment - on both sides.
Put payments on a schedule
Do you have clients who pay regularly? If your clients pay at regular intervals, such as monthly or every six months, it can be easy for them to forget to make these payments. That is why it is a good idea to put regular payments on a schedule to allow them to be made at the same time every week, month, or year. This means that even if your client has a change of staff, the payments will not be lost in a reshuffle and you won’t lose out.
Pursue late payments as soon as possible
It can be difficult to find the time and energy to pursue late payments, especially if your credit control team is small. However, it is vitally important to make sure that you chase late payments as soon as they occur. Keeping a close eye on your financial health and any upcoming or scheduled payments means that you can pursue what you are owed quickly, before it causes issues for your business cash flow. This also reduces the chances of clients thinking they can “get away with” not paying on time, giving your business a more professional edge.
Consider putting fees in place
If your clients do not receive any kind of consequences for late payments, why would they stop? While you would hope that your clients will act in good faith, they may be delaying payment due to their own cash flow problems, or through simple disorganisation. You can motivate clients to pay on time by introducing late payment fees. These fees will be put in place the moment your client misses a payment, meaning that they will lose out financially if they don’t pay on time. There is a good chance that most clients would rather pay on time than pay extra. Those who fall foul of these fees are less likely to be late next time.
How to stop late payments affecting your business
When looking at how to stop late payments affecting your business, one of the best ways you can do this is through purchase invoice automation. As we have seen, this is a good way to ensure that clients pay on time every week, month, or whenever payments should be made. Credit Hound is advanced credit control software that allows you to take back control by automating many processes and causing an overall reduction in administrative tasks. It also shows you who has paid and who needs to be chased - giving you the best chance of receiving funds before it becomes a problem for your business.
Late payments can have a serious impact on a business of any size, and this is especially true for smaller businesses with less resources. If you want to automate your credit control processes and have more power over when you are paid, get in touch to see how we can help your company.