Prompt business payments make for great relationships. However, the endless wrangling that can occur over unpaid debts will unfortunately be familiar to most SME owners. So, is there a magic formula for making sure that you get paid on time?
Who are your customers?
For payments over a certain level (say, £600), make it standard procedure to carry out a credit check and find out who your customers are, financially. This costs just a couple of pounds but will show you straight away if this person has a habit of non-payment. If the results are bad then reduce the payment time in the invoice terms – no one has a right to 30 days, it’s up to you whether you want to allow that.
How easy is it to pay you?
Increasingly, people want to use online payment methods now, such as PayPal, and electronic bank transfers. Cheques are slow and cumbersome for everyone involved – and very easy to bounce - so make fast payments simple by offering a wide range of options. Ensure that every invoice shows the business address, bank details and email address for payment methods such as PayPal.
Have you made your terms clear?
Sometimes when new business relationships start the enthusiasm to get under way overwhelms everything else. Make sure that you have been clear about payment terms – and highlighted them to this new customer. State the payment terms in email correspondence, terms and conditions and on the invoice so that there is no confusion over when you expect a payment to arrive.
Do you just let a late payment go?
Some customers may feel that there are no likely consequences for paying late and so will do this on a repeat basis. However, if you have established procedures in place so that they will receive firm reminder messages if they don’t pay on time, this is less likely to happen. It’s often worth pointing out in the letter that you’re entitled to charge interest on overdue amounts – the overdue date will be either the one agreed in a contract or 30 days after the invoice.
Do you avoid taking action?
There is a balance to be struck with late payments between understanding that there may be a genuine reason for a payment not arriving on time and not allowing another party to jeopardise your own business cashflow. Late payments won’t go away if you stop thinking about them so it’s a good idea to make actioning them a part of your routine. Establish a simple process for dealing with late payments so that it doesn’t feel conflict driven or dramatic. Consider whether an early payment ‘discount’ might be worth the investment to keep your cashflow moving. And if it comes to the point where you feel you have done all you can and nothing has worked then don’t be afraid to seek out professional help from BSG Solicitors.