Insight from the Asset Based Finance Association reveals that SMEs are owed up to £64.2bn in unpaid invoices, a figure that has increased by 36 per cent since 2011. In order to free up valuable time and funds to support business growth, here’s what businesses can do to ensure customers pay on time.
Before payment is dueBusinesses must follow best practice from the offset by completing the required client credit checks before a contract agreement is signed. While organisations such as DueDil and Experian are invaluable in flagging any financial irregularities, The Gazette publishes up-to-date information regarding bankruptcy and insolvency notifications. If a potential client is implicated in one of these notices, it could mean it is about to enter administration. Aside from this, it is also important to be open about your business’ payment terms. Too often the issue of payment is ignored for fear of putting customers off and communication is restricted to a line in the contract’s small print. Open verbal communication regarding payment expectations increases the likelihood that any required contract amendments are made earlier and invoices are paid on time.
Once payment is dueSending through an electronic copy of an invoice once it is due is not enough. The most common reasons given for late payment are that either the information on the invoice is deemed incorrect or that the client has not received a copy of the invoice. For this reason, payment requests should be “called in” to ensure receipt and to encourage customers to check the details of the invoice itself. Read more about late payments:
- Five ways to avoid late payments from larger buyers
- UK suffers from late payment “epidemic” as most firms neglect suppliers
- How late payments became the driving force behind CreditHQ
Invoice is overdueIn the event that an invoice is overdue, efforts must be made to ascertain the reasons for late payment. Any disputes raised at this stage should be dealt with in-house and if necessary, a third party or dispute resolution specialist can be called upon to aid negotiations. If the client is genuinely unable to pay in full, the business should aim to offer a staged payment plan in order to recoup funds as quickly and painlessly as possible. Legal action should only be pursued as a last resort. Taking a client to court is likely to damage the working relationship beyond repair and can often prove costly and time consuming. In following due diligence procedures from the start and promoting open lines of communication with clients, SMEs can significantly reduce the risk of late payment. By focusing on the development of an efficient credit control function and staff training, firms can increase their ability to create accurate financial forecasts, protect cash flow, and free up the funds required to invest in business growth. John Atkinson is managing director at Hitachi Capital Invoice Finance. Despite legislation stating that debtors not paying within 60 days will be forced to pay interest and reimburse reasonable recovery costs, around 85 per cent of SMEs are affected by late payments. As such, we took a look at six ways SME owners could avoid being owed money by consumers.
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