Protect Your Business Against Late Payments
If you run a small business, late payments from your customers can be the most frustrating obstacle of all when managing cashflow - and can impact on the very wellbeing of your business.
And while one late payment can be inconvenient, letting them continue over time can eventually have a seriously negative impact on a business’ long-term survival.
Even the smallest cashflow delays can seriously disrupt the growth plans you may have for your business and frustrate employees and suppliers if they are not paid on time, or even prevent you from paying the fixed operating costs of your business.
Here are practical steps you can take to ensure that your cashflow does not suffer as a result of late payments.
Few businesses check a client’s credit history. It is difficult to understand why because failing to do so can be a very expensive and painful mistake. Of course, businesses must convert leads to sustain and grow their operations, but that doesn’t mean you should blindly agree to do business with anybody who comes through your door. Untrustworthy and unreliable customers can quickly start to cost your business dearly.
Run a credit check on potential customers to find out whether they have a history of late or missed payments, so that you are able to take any necessary measures to minimise the risk to your business. If you believe there is a chance that they will not pay then don't do business with them.
Relying on single large invoices when any projects are finished is a risk. Instead, invoice clients regularly for partial amounts that you agree in advance with them. Although it may mean some extra paperwork, it can make a huge difference, not least when it comes to your peace of mind.
If a customer misses a payment deadline, you can cut your losses by stopping work rather than finding yourself not being paid when the project has been completed.
Remember, too, that smaller sums of money will be easier for your customers to find - and that means you are far more likely to be paid on time, even if a customer is dealing with their own cashflow issues.
If you are dealing with a customer who has to make regular payments, it makes sense for all parties to set up a recurring payment plan will enable you to collect these payments automatically, increasing and improving cashflow and aiding customer retention. Direct debits are ideal for variable collection amounts helping you run your business effectively.
Direct debit is the most trusted payment method for businesses of all shapes and sizes, with 90 per cent of British adults having at least one direct debit and a staggering 22 billion transactions processed annually in this country.
The impact of late payment on small businesses can be huge, but can also be easily avoided. Direct debit provides efficient, reliable cashflow, which is the lifeblood of any small business.
One of the simplest ways to ensure your customers pay you promptly is by making it as easy as possible and enabling them to pay the way they prefer. Card payments have increased hugely. In 2006, we saw 6.5 billion purchases made by credit or debit card, in 2016 this figure had more than doubled to 15 billion. And with new payment technology being introduced constantly, it is predicted that by 2025 the use of cards will overtake all other non-cash payment methods combined.
There are several ways to accept payment by card, traditional solutions use a card payment terminal (PDQ) which allows payments to be taken in person or over the telephone – particularly useful when chasing late payers. Another great option is ‘pay by link’, this solution allows you to add a link to your invoices before you send them out, your customers can then simply click on the link and make a card payment online instantly.
If you allow customers to use their preferred payment method they are more likely to pay you on time. In addition to improving your cash flow you will also enhance your customers experience of doing business with you, and this will surely increase repeat business and customer loyalty
Invoice financing or invoice factoring allows you to exchange an outstanding invoice at your financial institution for most of its value up front. Your financial institution will then pursue payment from your client on their own.
As late payments become a growing problem, small businesses need to take preventive steps to protect cashflow and ensure their ability to operate smoothly. By thinking ahead and actively managing these risks, you can not only survive, but also support your business’ growth by giving your business an advantage over poorly prepared competitors.
It is hard to believe, but many businesses do not have clear, concise and legally binding written agreements with their customers when it comes to non-payment. Make sure that the contracts you issue make it crystal clear what will happen in the event of non-payment. That means working out how late a payment can be before work is stopped, and putting agreements in place regarding late fees and interest accrued on any unpaid invoices.
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