Short small business guide to invoicing and credit control
For small businesses, getting paid is as equally important as creating the order. According to SAGE Pay, 1 in 5 small companies are owed more than £30,000 in overdue payments. Late payments spell trouble to small business owners, and can severely jeopardise a healthy cash flow.
Here are a few handy hints for invoicing customers and tackling late payments
Check your new customers
You may want to ask your customer to complete a credit application form, so you can check their credit rating and assess any potential risk involved. This will help decide whether you work with the customer and assist in setting a realistic credit limit.
Be aware of fake businesses; use Google Maps to verify the address and, if you are still uncertain, book in a site visit to get to know their business.
Make your invoices as clear as possible:
I know this seems obvious, but often even the smallest mistake on an invoice can hold up payment. Before you send the invoice, make sure the information is correct and clearly set out.
Use a standardised template making sure you include:
- A unique identification number for mutual reference
- Your company logo, name, address and contact information
- The customer name and address
- A clear description of the goods and services you have provided and the supply date
- The date of the invoice and the amount being charged
- The VAT amount clearly set out on a separate line
- The total amount owed
- Your payment terms presented clearly
Set clear payment terms
Setting clear payment terms from the start is vital to maintaining a healthy cash flow. Don’t over stretch yourself – if you can only manage 30 day terms, then you are well within your rights to do so.
Avoid bending the rules for a new ‘superstar’ customer, they may not be all they seem and you may not thank yourself later!
It may be beneficial to offer discounts for earlier payment, or exercising your right to charge interest on late commercial payments (8% + The Bank of England’s base rate).
Issue invoices promptly.
Send your invoices to your customers as soon as possible – don’t wait until the end of the month as you could find that you have missed the ‘cheque run’ and your payment could be further delayed.
Chase debts methodically,
As soon as the payment becomes overdue, politely send a reminder email, set a follow up call for 7 days time and ask for expected payment date.
If payment is still delayed, as a last resort you can issue a Statatory Demand which will allow the customer a further 21 days to either make payment or agree to a payment plan.
If this process fails to work and you are owed over £750 from a commercial debtor, you are eligible to start legal proceedings; however it’s worth assessing if the value of the invoice will counteract the legal costs.