Top Tips for SME’s to End Late Payments
On average SME’s in the UK are paid 21 days late. This can affect a business’s cashflow, finance management and even mental health. Recent research has revealed that nine in 10 self-employed people, at least occasionally, worry about their financial situation. A third of these people said that these worries have caused them to lose confidence and to lose sleep.
A parliamentary committee has this week called for a clamp down on poor payment culture affecting SME’s and freelancers. The recommendations in the report call for a requirement for all medium and large businesses to sign the ‘Prompt Payment Code’ and adopt a statutory 30 day payment term.
In the meantime, what can you do to make sure you get the money you’ve earned on time? We take a look at some tips below.
Invoicing
If possible, invoice in advance. Of course, some customers will not like this, but it is worth trying to push for an upfront payment. You could try to negotiate a discount for the customer to try and sway them into picking this option. A more suitable option for the customer may be to make half the of the payment upfront before any work is completed and then complete the payment afterwards.
The other option is to invoice immediately after a job. Many industries do this already and some are better at it than others. By sending an immediate invoice you can capitalise on the work being fresh in the mind of the customer. Scientifically speaking, by invoicing immediately it will have a more positive effect on the speed of the payment being completed. (This is called recency bias).
Be clear
We all like to know what’s going on and being kept in the loop, and your customers are no different. When working with customers, try to provide as much detail as possible regarding the work so that they can fully understand what it is they are paying for. You can include details such as what work was completed, what timeframe it was completed in, any VAT details and of course your payment policies. Make sure that you leave no room for error or uncertainty. If a customer has a list of questions regarding their bill, then this will delay your payment.
Be firm
Obviously, we all try to be as mild mannered and professional as we can be when it comes to business, but this does not mean that you can not be firm when it comes to getting the payment from your customer. Be careful with the language that you use and try not to leave any space for interpretation or complacency. When communicating about any payment owed, be assertive that you expect to be paid within the stated payment terms rather than politely asking if the customer might pay within the timeframe given.
If this is something you are not comfortable with, then leave it in the hands of your finance team or bookkeeper, if they are able to do so. Many businesses appoint a virtual assistant to handle all the chasing. These can be hired on an ad-hoc basis and could work out cheaper than hiring permanent staff.
Chase prior to deadline
It is very common for invoices to be paid late, so one way to try and help this is to send out a reminder for the payment well before the deadline approaches. Many businesses are guilty of leaving reminders until the day before the payment is due which still ends up with the payment being made late. By sending out reminders 1-2 weeks before the payment deadline you give yourself and your customer more time for the payment.
Technology
Most industries have now embraced technology into their businesses, but maybe there’s more you can do. There are thousands of software’s and apps out there which are cost effective that can automate your invoicing. From setting reminders or creating invoices to claiming expenses, you can automate many of your company’s processes, leaving you with more time to focus on your business.
Don’t give up
If you are still getting late payments, you need to get firm. Maybe for some of your customers, regular reminders are needed rather than just one or two. The more you pressure the person to hand over the cash, the harder it is for them to keep not doing it.
Make it clear that any late payment by another business will be subject to statutory interest, which is 8% plus the Bank of England base rate for business to business transactions.
Practice what you preach
As a business who expects to be paid on time, it is only right that you should treat other businesses as such. Not only do timely payments help to maintain a good relationship with your suppliers and contacts, but it can affect your future purchases. If you have regularly paid late in the past, this can show up on your credit history, and other businesses will be less likely to want to strike a sale with you.
If you have any concerns regarding late payments for your business or have any other useful tips to share, then please leave a comment below or contact us directly.