10 Tips for Tackling Late Payment

Cash is king, and late payments can be fatal. Here’s how to prevent and tackle this cashflow problem

10 Tips for Tackling Late Payment

Prompt payment is vital for the survival of small businesses. 10% of all business failures can be attributed to non-payment, while a further 20% result from the failure of a trading partner. An unpaid invoice is valuable cash that could be liberated and used in your business if you focus on the basics of credit management.

However, late payment is a growing problem: recent research from Sage found that 57% of small businesses had waited more than 90 days for a payment, while 72% had waited 60 days or more. Overall, late payments currently amount to £55 billion.

Every business needs to know its clients and make a judgment call on when and how to chase debts. It’s important to understand that doing this shows you are running your business well and can reflect positively on you. Some customers may deliberately wait until they receive a court summons before paying; they expect it, it’s nothing personal and they won’t hold it against you as a supplier (assuming that you wish to do business with them again).

Some SMEs don’t even address the basics and are late issuing invoices, don’t issue invoices electronically and are not diligent at chasing up debts. Assuming that you’re not making these basic mistakes, here are ten tips to help tackle late payment.

  1. Review your trading terms and conditions to ensure they are fit for purposes and aligned with the type of customers you do business with. Consider whether you require different payment terms for different types of customers.
  2. Review your trading history and bad debts. Assess the risks of entering into contracts of a similar nature with a similar type of client.
  3. Carry out credit checks on your customers before doing business with them. For example, depending on the size of the contract, ask for bank and/or trade references, pay for a credit search, or as minimum check Companies House for any registered charges. Ensure you have the customer’s full address and contact details in case you need to chase non-payment. As a guide to your customer’s payment intentions, check if they have signed up to the Prompt Payment Code; this is a voluntary code developed by the Department of Business, Innovation and Skills which sets out a statement of commitment between a business and its suppliers regarding prompt payment and is gaining momentum and recognition.
  4. Consider setting maximum credit limits for your customers.
  5. If the customer is a limited company or a limited liability partnership, consider asking the directors/partners to give personal guarantees.
  6. Always provide written terms and conditions, making sure they are agreed by the customer before any goods and or services are provided. Terms and conditions on the back of the invoice are too little, too late.
  7. Set out clearly what goods or services you are providing and when payment is due.
  8. When goods or services are supplied, ask the customer to sign an acceptance form to minimise the possibility of a dispute arising.
  9. Ensure your invoices are issued on time, sent to the right person and set out clearly what you have done, the amount owed and when it’s due.
  10. If the customer is late in paying, find out why and if necessary issue a reminder within the timeframe set out in your terms and conditions. Also consider enforcing any interest or penalty clauses.

If you do not have a clear process for managing cash flow your business will suffer. Applying and constantly reviewing this process should help you to avoid incurring significant late payment problems.

Will Cookson is Partner at Harbour Key LLP

Always take professional advice when deciding your tax planning or investment strategy. The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute advice. Specialist advice should be sought about specific circumstances. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Harbour Key LLP is a limited liability partnership registered in England and Wales number OC361370. Harbour Key are not registered financial advisors and do not provide financial advice or pension investment advice.

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