7 Ways Small Businesses Can Avoid Late Payments
Struggling with late payment problems? Here’s some top tips to make sure your small business gets paid on time...
Running a small business demands juggling sales, customers service, managing staff, bookkeeping and 101 other jobs. Business owners work to their limits to run and grow their firm and the stress can be made much worse when you’re worrying about getting paid for it.
Late paying customers has become a massive issue for small and medium business owners, with many owed billions in outstanding payments and being forced to borrow in order to keep cashflow going; whilst chasing late payments and managing the administrative burden also causes a huge strain on resources.
So what can business owners do in order to avoid or at least reduce the impact that late payments may have on their business? Here are seven tips to help you keep your firm’s cash flowing:
1. Do your research: Seek business support
The government is increasingly investing in resources to help micro-businesses, so it’s worth learning more about what’s out there to help you. For example, business secretary, Sajid Javid, recently used the Queen’s Speech to announce the new Small Business Conciliation Service, which once introduced, will help settle disputes between small and large businesses, especially over late payment practices. Services like these, when deployed effectively, can go a long way to support micro and small businesses.
2. Consider a move to electronic invoicing
Many small businesses continue to issue e-invoices via email or traditional paper invoices – with some waiting up to a month after completion of work to do so. A move to electronic invoicing or even immediate card payments has the potential to significantly improve micro-businesses’ cashflow and save valuable time by making it easier for customers and suppliers to pay.
3. Push large enterprise customers harder for payments
The blame for late payments frequently lies at the door of big business, whose rigid payment terms are often designed to protect their own cashflow. Consider issuing penalties or adding interest for outstanding payments. Not enough small business owners are doing this because they fear losing business from their large enterprise customers for doing so or just aren’t aware of this right.
4. Set your limit: 30 day payment
This is a standard time period for payment terms and if you have them in place, start chasing from day 31 to get paid as quickly as possible. The longer a job is completed without payment, the more difficult it will become to get paid.
5. Get on top of your finances
Having a complete overview of what’s coming in versus what’s going out will enable you to forecast better. You’ll have a clearer idea of when payments are due and can be prepared to chase at the right time. There are many different management tools available that give owners real-time access to their finances. Getting a complete overview of the health of your business at the touch of a button also enables you to make better-informed business decisions very quickly. For more help, check out our 10 tips for managing cashflow here.
6. Build the best possible relationships with your customers
The importance of building a good relationship extends beyond retaining the loyalty of your customers. It sounds obvious, but if you take the time and effort to get to know them personally – both your usual contacts and those in their finance teams – they will be less likely to cause complications when it comes to making payments.
7. Set money aside for when times could be tough
This could be a last resort, but can provide you with reassurance if something goes wrong and payment is delayed. Build in a buffer and don’t touch it unless absolutely necessary.
An increasing number of businesses have to cope with longer payment times and the real possibility of non-payment can have a devastating impact. While new government initiatives will help, you can get a firmer grip on your finances by using technology and savvy cashflow management to combat late payments. Doing this will provide more financial security and free up time to run and grow your small business.
This article was written by Rich Preece, UK VP and Country Manager at Intuit QuickBooks.