Solving late payment problems
Problem 2: The pressure of late payments
Late payment – or worse still, non-payment of invoices can put a major strain on many areas of a business. SMEs need their invoices to be paid so that they in turn can pay their bills and manage their cash flow effectively. When invoices are left unpaid it’s important to have controls and systems in place so that it doesn’t affect your business, and waste time and effort in getting them paid.
Make your invoices clear
Don’t let your invoices go to the bottom of the pile because they’re not clear and don’t have the relevant information. Missing information such as purchase order numbers, dates, description of work and payment details will make paying your invoice more difficult. Leave your customers in no doubt of what the invoice relates to and how to pay.
Have proper credit control
Hope for the best, but expect the worst! In an ideal world, invoices are issued and paid in accordance with your terms. But, in reality this doesn’t always happen. However, having credit control and debt recovery systems in place will help you react quickly when invoices become overdue. A good system makes sure you keep on top of unpaid invoices.
Check out new customers
Although it’s great to have new customers on board, it’s always best to do some basic checks to make sure you’re not going to encounter problems down the line.
Ask new customers to complete a credit application form, then check their credit rating and assess the risks. Decide whether they are the type of customer you want to do business with.
Set clear terms
Be clear from the outset. Use your customer’s credit rating to set a limit on the amount they are allowed to owe you, and ensure they understand the payment terms. Try to keep a written copy of everything that’s been agreed, so you can refer to if needs be.
Issue invoices promptly
Once the job is complete – send out invoices as soon as possible. Don’t wait until the end of the month as you may find you have missed the ‘payment run’ and the payment is delayed until the next month.
Most companies will only pay invoices at certain times, either weekly or monthly, so make sure to give yourself the best chance of getting paid quickly, by being on top of your administration.
Send a reminder
Don’t be afraid to get in touch with your customer when an invoice becomes due. A polite, prompt reminder could be all it takes to get your invoice paid. When calling, always record the time, date, name of person you spoke to and when you can expect payment. Make sure to follow up your call with an email to confirm what was agreed.
These are just a few pointers to help make sure you get paid on time. The main thing to remember is to get a robust system in place and don’t be afraid to remind customers about outstanding invoices. Keep in touch and follow up when payments aren’t made when agreed.
Read more in the problem solving series here: