Is your business struggling to tackle late payments?
Being paid late can take its toll on your team. From losing time on making sales and finding new customers to falling short of cash flow, having to dedicate a lot of time on chasing payments can be detrimental to your business.
And with poor cash flow being the single biggest reason that businesses cease trading, making sure you get paid on time should be a task you prioritise.
To help you, here are a series of top tips for chasing late payments.
1. 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.
2. 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.
3. Choose the right people
Make sure 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.
4. 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.
5. 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.
6. Claim interest
You have a statutory right to claim interest on late payments at 8% based on the European Central Bank (ECB) rate. Additionally, you can claim compensation for debt recovery costs. Letting your customers know this as early as possible may encourage payment.
7. Be flexible
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.
Read more about cash flow and late payments
- A free guide to managing your cash flow
- 7 top tips to avoid a cash flow crisis
- Why business intelligence can help you improve cash flow
8. 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.
9. 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.
10. Chase early
Be proactive and chase your suppliers for payment. Make it clear that you’d prefer to be paid electronically by digital transfer or Direct Debit, rather than by cheque.
Also, if you’re waiting on a particularly large payment, don’t be afraid to make a courtesy call or write an email to the supplier to check they’ve received your invoice and that there are no queries about it.
11. Be flexible
Minimise the risk of delayed payments by providing flexibility around credit terms. For example, set up a facility for payment by credit card and think about offering discounts, such as 1% for early payments. Remember to balance the extent of any discount with the benefits of having an improved cash flow.
12. Consider invoice discounting
Invoice finance solutions can be ideal for small businesses in need of an immediate cash flow injection. Invoice discounting is essentially a cash advance against the value of your invoices.
So when you raise an invoice, you’ll receive 85% of its value from a financier within 24 hours. You’ll retain full control over credit management. The financier simply gives you cash up front and you pay them back, plus a small admin fee, when you receive payment.
Tips from a business psychologist
Need more help when it comes to dealing with late paying clients? Mike Guttridge is a business psychologist and member of the British Psychological Society. Here are his best tips on getting paid.
1. State clearly what you want to happen
Make sure the client understands your point of view. Explain that you invoiced 30 days ago, the amount is now overdue and you expect to get paid by the end of the week.
2. Be nice, stay calm but don’t be a walkover
Certain clients will push you to the back of the queue if they think you’ll put up with it. It’s about being clear on your goal.
3. Keep reiterating the facts
Tell your client when you invoiced them and your payment terms. And always get your facts right. If you sketch over the details – or worse, get them wrong – you’ll lose credibility and it’s easier for the client to ignore you.
4. Make personal contact with the person who employed you
It’s much harder to brush off somebody you’ve worked with or built a relationship with in the past. Ask if they can pull strings with the finance department or have a word with the boss.
5. Be persistent
Make regular phone calls. Suggest a meeting. Get in touch, often.
6. If you have to deal with the accounts department, be personable
Find out the person’s name and try to understand their point of view. Do they only pay on certain days? Is the company struggling? Treat everyone with respect, including the most junior assistant. It pays off.
Manage your cash flow
Need help managing your cash flow and keeping your business moving in the right direction? Read this guide for advice on how to ask for payments and 10 tips to stay on top of your cash flow.