If you are a startup or small business in the UK, it is likely that you are very much aware that late payments can cause real issues for your firm. The problems that can be entailed as a result of late payments can be threefold.
For example, they can cause you significant problems to your cash flow, whilst you are waiting for payment to come through. This can have a knock-on effect on your ability to pay suppliers and so forth. In addition, late payments can take a huge hit on your resources. Having to make the effort to chase these late payments puts a drain on your resources money and time.
Unfortunately, it is a problem that many companies encounter. In the UK alone, it is estimated that around 31% of all small businesses are paid late on a regular basis. What is worse, is that it is estimated that approximately £30bn is owed to UK customers at any given time across the country, and small businesses spend over £10bn every tear to resolve the situations that can arise as a result of late payments.
With these points in mind, we take a look at some of the best ways in which your business can avoid the issue of late payments.
Set up clear terms
A large number of payment issues tend to be the result of companies who are trying to push things and see what they can get away with – essentially, taking advantage.This can be much easier to do when set payment terms have not been agreed upon.
As a result, you should make sure that all invoices are always provided with thorough and binding payment terms. These also should be made completely clear as early as possible. For example, make clear things such as available payment method and due dates so that there can be no confusion regarding the invoice itself. See our guide on how to write an invoice.
Small businesses should take steps to ensure that they know exactly who they are dealing with, making credit checks worthwhile. If you run a fashion brand or marketing agency and asking a client if you can credit check them, it might seem a little strange. But there certainly are some environments where running a credit check would not be unusual, especially for large orders or if it were some kind of business loan – see here for more information.
Credit checks help to identify the creditworthiness of customers, and helps to deduce any potential risks that could be involved, such as the potential issue of late payments.
Using credit checks evidently will cost your company money, but the benefits of having them tend to outweigh this.
By having thorough internal processes in place within your company, you can also help to reduce the risk of late payment. For example, having tracking for payments can help to better identify invoices that would otherwise fall through the net. In addition, it can help you to chase up payments that may not otherwise get paid.
It is recommended that all companies have a defined processes for how they deal with invoices once they have been submitted, as well as a method for flagging up late payments, and a process for resolving these. Typically business accounting software can help you to deal with this more effectively.
Make the payment process straightforward
Another way in which your business can help to reduce the potential of late payments occurring is by having a straightforward payment process in place.
You will find that different accounts departments have different preferences, but generally speaking, the more options that are available, the less chance your firm will will have of being paid late. It is worth avoiding proprietary payment portals if at all possible, as it can cause delays in customer payments.
You can become less reliant on payments from clients if you stay one step ahead of your cash flow. You can look at using invoice finance companies likes Funding Invoice, or even do basic things like putting money aside for a rainy day or asking your business account provider for a free overdraft for £500 or £1,000.
If you need to use business loans or other personal finance companies, be sure to use direct lenders (read more) so that you have more control over the amount you borrow and do not have any other brokers or fees involved.