99 problems but late payments doesn’t have to be one

Jay-Z famously rapped that he had 99 problems – the same could be said for businesses that are working their socks off to keep their firms ticking over and having to deal with late payments.

Running a business can be a challenging affair. As a business owner, you may have decided to take the plunge and take an entrepreneurial path to prosperity due to a personal passion, a thought-provoking idea or a desire to change the world.

But when you’re running a business, as you know, there’s much more to it than the goods and services that are produced and the desired outcome of a charge of lots of happy customers beating the doors down for more of the good stuff.

From dealing with admin, to making sure you’re keeping on top of cash flow, finding new clients, marketing your business, negotiating contracts, dealing with payroll, managing employees, ordering necessary equipment and much more, there are lot of issues to deal with.

When one of those issues is being paid late, things can get very frustrating. Having to chase invoices and payments can take a lot of time, leaving you with less of it to sell your products and services and make money for your business.

And with one eye on your cash flow, it’s vital that you get money flowing back into your firm to keep it going strong.

You’re not alone when it comes to issues with late payments – in fact, according to research we conducted, 17% of all payments to small and medium-sized enterprises (SMEs) in the UK are paid late.

But it doesn’t have to be like that. In fact, in 2018, late payments shouldn’t be a problem at all.

Our Sage Business Experts have had to deal with late payments. However, they’ve learned from those experiences and are here to share some great advice that you can put into play.

Make sure your invoice is accurate

Tim Holton, Uniq Systems

My one piece of advice to facilitate prompt payment from clients would be to ensure they receive an accurate invoice at the appropriate time. If it’s late or wrong then payment will be delayed. Using an electronic method, for example, will remove the vagaries of the postal system especially at Christmas.

Conrad Ford, Funding Options

If you make a mistake in your invoice, you’re giving a ready-made excuse to be paid late – particularly if your client is a large business. Recheck the information in each invoice before you send it and use proper invoicing tools such as online accounting software to ensure your invoice meets VAT requirements.

State your payment terms

Sid Moore, Moore Accountancy

There are a few things that might make clients and customers pay on time, including:

• Offering a variety of payment methods to clients (bank transfer, PayPal, setting up direct debits, etc) to make it easy for them to pay on the go
• Offering prompt payment discounts. Some of our clients offer discounts of 1% – 1.5%, which makes their customers pay faster as they are “saving” money
• Having a system in place where you invoice immediately after the service or goods have been provided, and a dedicated person or system to chases debtors on a cycle depending on how overdue payment is.

The main things are to ensure your invoice clearly states the payment terms (such as seven days or 30 days) and a due date of payment. And you should regularly chase your debtors so they get used to knowing that they will be chased if they do not pay on time.

Jenny Garrett, Reflexion Associates

Add the following to every invoice: “We appreciate prompt payment. We are a small business and late payment will adversely impact our cash flow.”

Make sure you know exactly what is needed on the invoice – does your customer need a purchase order (PO) number, a certain format or particular codes? – so there is no excuse for invoices not to be paid.

Make friends with those who are paying your invoices. Make sure they know you by name and that you’ve created a personal connection – it can move your invoice higher up the pile.

Invoice straight away

Alison Parsons, Albert Goodman

Invoice your customers immediately. While making a sale is great, the faster you receive your payment, the sooner your cash reserves are replenished. And try emailing invoices and statements – that can save time and provide your customer with the opportunity to pay you a lot sooner.

And try using accounting software that comes with a connected app. Use the inbuilt software settings to package the emailed invoice clearly, so it’s easy to find in a full inbox.

Chase your invoices early

Paul Green, NN Connect

Chase the invoice before it is due to make sure there are no errors that may be disputed, that the debtor is aware when it is due and to make sure it’s in the pay run, so it’s paid on time. It’s a nicer conversation making those checks rather than chasing an overdue invoice, which is much more frustrating.

Sue Keogh, Sookio

Chase invoices early. If you continually let them go overdue and then come over all apologetic about chasing them, you’ll give you the impression that you don’t really need the money and you’ll be put to the bottom of the pile. You have to be tough – you’ve done the work, so it’s your money, not your customer’s money.

Janice B Gordon, The Problem Solver

Understand how your customer’s finance operation functions and know the name of the person who deals with payments. Send a reminder that the payment is due a week before the due date and follow up with a phone call three days before it is due to check the status of your payment.

Use a formal contract or a lawyer

Alex Jordan, Hyperlink

Make sure you enter a formal contractual agreement with your clients, specifying a payment schedule. Our terms, for example, give us the right to seek interest on late payment and to terminate the agreement prematurely should they not pay.

By entering a formal contract, you also give your lawyers more flexibility to enforce the agreement versus a verbal agreement. However, it also reinforces a payment structure to your clients, which they are more likely to follow. This is essential, particularly when dealing with larger businesses.

And a second piece of advice: don’t be afraid to instruct your solicitor to send your clients a late payment notification. You have a right to be paid – and by ignoring a late payment, you are reinforcing that behaviour.

By implementing a policy to send a solicitor letter after X number of days of late payment, you’ll find that most of your clients will comply with the payment schedule going forward.

Jeremy Corner, Blue Eyed Sun

Put systems in place to take the emotion out of it so it doesn’t keep you awake at night with worry and frustration. Systems include a specialist lawyer that sends low cost letters on our behalf and handles the court processing when necessary.

A lawyer’s letter is usually enough to deal with the problem and we rarely have to take customers to court. We also fire the really bad customers by putting them on pro forma. If you make it systemic, people adapt to your systems.

The most important thing is to send your invoices, statements and chasing letters on time each month. Make it all systematic.

Speak to your clients and customers

Grace Marshall, Grace-Marshall.com

Talk about your payment terms, in conversation with your clients, when you’re agreeing your business relationship. Don’t rely on a bit of small print on your invoice. Setting expectations clearly up front is always a far more pleasant and useful conversation than trying to correct them afterwards.

Sarah Arrow, Sark eMedia

The biggest reason small businesses don’t get paid on time is because they don’t articulate their expectations and expect the client to be telepathic. I recommend that small businesses have terms of business that lay out their expectations.

When they book a client, those expectations will be agreed with them. Going forward, the terms are the framework that the business and the client work within.

Mark Breen, Safe Events

Don’t avoid the money talk. Discuss it early and clearly. It is an element of all business transactions and all businesses understand its importance.

Profile the credit risk of your customers

Keith Tully, Real Business Rescue

Credit risk due diligence is absolutely crucial for businesses of all sizes and would reduce the amount of bad debts you have to write off. When a customer or supplier isn’t paying, it can present a real cash flow problem but the truth is that this customer could have been suffering problems for months – but you just didn’t know about it.

If you had known, you could have put appropriate plans in place to protect yourself – or sourced new partners to alleviate the problem. There are plenty of tools out there to help profile the credit risk of a customer and alert you when the warning signs are there.

They can also tell you what credit limit should be offered to your clients, based on current status rather than relying on historical behaviour. These tools can be very cost-effective and help reduce bad debts significantly.

Work with clients who pay on time

Helen Lindop, HelenLindop.com

This one is mainly for new solo business owners and sounds really obvious but… only work with the clients that DO pay up on time. It takes a while to work out who the good clients are but experience helps and over time you can drop the clients who don’t pay up on time and nurture the ones that do.

This is also about knowing that you can pick and choose your clients – you don’t have to work with everyone who comes along. Also, asking for a deposit in advance not only helps you get paid, it also gives you a clear sign early on that the client is willing to pay you on time (or not!) and shows they are committed to working with you to get the job done.

So take the advice from our Sage Business Experts on board and hopefully you’ll be able to sing “I’ve got 99 problems but late payments ain’t one!”

What advice have you got for your peers on dealing with late payments? Let us know in the comments below.