Keepers Accountancy's Blog

How to tackle late payment - free tips for SMEs

Posted by Ludovica Zallot on Nov 3, 2016 5:00:00 PM

According to a YouGov poll, 85% of SME's are affected by the issue of late payment. If you are one of them, here are out tips for tackling and preventing it

 
Tips for SME's on how to tackle late payment
 
Late-paying customers can have a major impact on a business. They can create lasting damage to its financial health, with many SME's forced to borrow money or in turn become late payers themselves. Here are our free tips for SME's on how to tackle late payment and prevent it from having a damaging effect on your cash flow and credit rating.
Clear terms
 
If you are having problems with late-paying clients, the first step should be to review the terms of your contact. Is the contract sufficiently transparent on when and how the client should be paying you? Make sure that all the terms are clearly explained and that the contract is in written form.
 
This contract should also include incentives for early payers, like a small discount - as well as extra fees for missing payment deadlines, in order to discourage late payers.
 
Go digital
 
Only 36% of micro businesses use email to send out invoices to their clients, with many still using paper invoices (Source: Quickbooks). Besides the obvious drawbacks of relying on paper documents, which include higher handling and storage costs, emailed invoices are faster, easier, and more direct.
 
Managing your invoices digitally has many benefits. Firstly it will allow you to keep track of them, creating a clear and rapidly accessible trail in case of a dispute or investigation. It will also allow you to get more insight into your customers' paying habits - so that if there are a few repeat offenders, you can create a special "chasing" routine especially for these clients.
 
If you use accounting software, you can set it up to send invoices to clients automatically at specific times. With invoicing software you can also create your own reminders to be sent out to clients at set intervals. Often the email message will include a "Pay Now" link - to make the process as quick as possible and encourage clients to pay straight away.
 
Free advice for small business on how to tackle late payment
 
Research the Client
 
Can you trust your customer to pay you in time, if at all? Finding out more about the client that you will be taking on can help you stay clear of late payers and prevent irreparable damage to your cash flow.
 
There are several credit reference agencies that could give you information on a business' credit rating - and don't forget to check Companies House to understand the status of the company and avoid nasty surprises.
 
Investing some time and money in doing this research could help you avoid doing work that is then left unpaid.
 
Sort out your invoicing and chasing times
 
The invoice should be sent as soon as the payment is due. You should start chasing, politely but firmly, as soon as the first payment deadline has passed. Set up regular reminders to be sent automatically to the client - but monitor payments carefully to avoid chasing those who have already paid you.
 
At the third or fourth reminder you should start mentioning interest. All companies in the UK have the right to charge interest in case of late payment - equivalent to 8% plus the Bank of England's base rate. Give your late-paying client a polite warning about how you will start charging interest - it might just be the tipping point for them.
 
In conclusion, there are a few measures you could take to prevent or manage late-payment. Firstly, research a client's credit rating before taking them on - and make sure your payment terms are as transparent as possible. 
 
You should also use digital invoicing and start chasing as soon as a payment deadline is missed. These measures should help discourage late payers and increase your chances of recovering the money early on if a payment is missed - to ensure that your cash flow stays healthy and that you will not have to become a late-payer yourself! 

If you have any questions about this issue, do not hesitate to seek professional help, or if you are with Keepers, talk to us now. On top of offering some of the best accountancy services in Sussex, we also give free business advice and free tips for small businesses. Book your Free Telephone Conversation with us now. Keepers, the proactive Sussex accountant.

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Topics: business tips