A report published by Banks automated clearing system (BACS) has revealed that half of all SMEs are experiencing late payments and waiting an average of 24 days beyond agreed invoice payment dates.
With poor cash flow being the single biggest reason that businesses cease trading, here are our top ten tips for chasing late payments.
Know your customers
Running credit checks on new customers could save you valuable time and money in the future. It’s now possible to run quick checks online. This tip isn’t confined to new customers – if you have reason to suspect an existing customer may have problems paying their invoices, checking their situation may be a prudent idea.
Be clear about your payment terms
Make sure your payment terms are included on every invoice you send and keep them consistent. Additionally, outline the terms verbally to new customers. Be clear about timeframes, costs associated with late payment and acceptable payment methods.
Encourage customers to pay using cash, electronic transfer or Direct Debit.
Choose the right people
Make sure that the people on your credit control team are equipped for the task in hand. They should be consistently firm but polite, resilient and organised. It’s also important that they enable, rather than impede future sales.
Make a courtesy call
If you’ve issued a customer with a particularly large invoice, call them up before payment is due to make sure it has been received and there is no query. This is good customer service and pre-empts any possible delay in payment.
Start chasing debtors right away
Don’t delay in chasing a late payment the day after it was due. It’s better not to allow leeway – the longer you leave it before you contact your customer, the further down the queue your invoice will drop.
You have a statutory right to claim interest on late payments at 8% over the Bank of England base rate. Additionally, you can claim compensation for debt recovery costs. Letting your customers know this as early as possible may encourage payment.
On large, outstanding amounts be prepared to offer flexible payment terms. Whether this means regular instalments or simply splitting a bill into two manageable chunks, in some circumstances it may be your best chance of payment.
Don’t let the problem escalate
If you haven’t received payment for goods or services, stop supplying the customer immediately. If the customer needs your product or service in order to run their own business, cutting the supply may be exactly the leverage you need to initiate payment.
Use a debt collection agency
As a last resort, employ a debt recovery agency to act for you. Agencies will often work on a no recovery no fee basis, however if the debt is large the percentage commission can be substantial.