If I was granted one wish to really give my clients a boost in 2017, I’d ask for a change to our culture of late payment in the UK.
January is a risky time for SMEs because it follows what can be a short trading month in the run up to Christmas. This means less money is coming in and more is going out in festive celebrations or staff gifts. They may also face paying year-end taxes.
But there is another risk to businesses looking to get ahead this year, highlighted in an Amicus Commercial Finance study. It showed that an enormous 61% of invoices issued by our SMEs remain unpaid within the agreed debtor period.
When you consider that this report also revealed that 70% of firms rely on getting paid in this period to avoid a shortfall of working capital, this culture has serious implications for their survival.
In fact, late payment costs our economy £2.5bn a year, according to the Federation of Small Businesses, and kills 50,000 small firms annually.
So it’s time for SMEs to take charge of their own destiny. Managing late payments is costing owners too much – not just in managing cashflow, but also in time and stress levels.
So here’s a straight-talking guide to getting your money:
1. Stop being so British about money
Your customer expects you to send them a bill for work you do. There is no reason to feel uncomfortable about asking for money in return for your goods and services.
In fact, if you don’t pursue payment you risk, at best, becoming a cheap credit line for your customer and, at worst, a supplier they don’t have to pay at all. Remember that your customer is not your customer until they have paid you.
It’s also important to check all new customers’ ability to pay you, so run a credit check before starting any work.
2. Review your accounting process
When do you send out your invoices? Is your policy to send them out as soon as the work is done, at the end of that month or ‘when you get around to it’?
If you delay sending out paperwork, you’re putting off the day you get paid. But what you may also not have thought about is that by invoicing promptly, you are helping your customer to stay on top of their own cashflow.
3. Make your terms clear from the start
When do you start chasing the payment of your invoices? Do you start on day one, 31 or after you’ve fumed a bit?
Write a clear set of terms and conditions which explains your business’s payment policy to your clients. Then your customer will be fully informed and you will be in a strong position to begin negotiations over late payments. It avoids misunderstandings, embarrassment and conflict.
Developing a set of template letters/email content can also be a useful tool, allowing you to communicate clearly and with confidence that you are using the right wording.
4. It’s your payment, so ask for it. Again
In my experience, habitual bad-payers tend to pay attention to those who shout the loudest. If you’re not chasing your debts, you automatically go to the bottom of the pile.
But a late-paying customer is doing themselves a disservice. Agreeing interim billing with suppliers, where invoices for smaller amounts are submitted through the life of a project, means they can smooth out their own cashflow cycle. It also means delays have less impact on both parties.
5. Become trigger happy
As well as putting good policies and procedures in place, it’s important to set key trigger points to guide how you respond to this problem in future.
This means doing periodic reviews of your outstanding invoices and contacting your customers regularly to ask for payment.
Of course, longer term, there are other strategies which you can implement to tackle this issue.
Half of SME owners that we spoke to for the Haines Watts For Love or Money study last year, for instance, said they rely too heavily on one key supplier, which leaves them in a vulnerable position if their invoices aren’t paid on time.
Find a better spread of customers and you’re immediately in a stronger position to negotiate.
How do you tackle the issue of late payment in your business?
Want to know more? Call us on 01432 273189 or email email@example.com