Annoyingly, quite often it’s the larger customers – and therefore larger orders which are worth more money – which can have a tendency for tardiness.
The issue is one which has hit headlines in recent months, with the Government even now considering fining businesses that don’t settle their debts on time. It’s also an issue which concerns the wider public: a recent survey found that almost 80 per cent of the general public would consider boycotting larger companies which failed to pay smaller suppliers on time.*
However, there are measures you can take to help your business get paid on time. Firstly, it’s a pretty obvious one, but make sure all your invoices go out promptly. If you invoice late, you’re effectively extending the period when the customer owes you money. It takes a couple of minutes to raise an invoice and it’s time well spent, so don’t delay on billing clients.
Never rely on spoken agreements – always ensure your payment terms and conditions are clearly set out in writing with your customers. Like any contract, this should be signed by both parties so there’s no legal wiggle room.
Carrying out credit checks on your customers is a really good idea. You wouldn’t lend a someone money without checking they can pay you back, so don’t allow companies to have goods or services on credit without checking their background first.
The easier it is to pay you, the more likely you will get paid on time. If you supply a service regularly, consider doing what we do at Odyssey Systems and making it a condition of the contract that you are paid by standing order.
This will largely solve the problem. However, in businesses where this isn’t appropriate, for example, retail, allow customers to pay in as many ways as possible – bank transfer, Pay Pal, credit card, debit card, cheque and, of course, cash.
If you can afford it, try offering discounts to customers who pay you early or pay you by standing order. It’s a real incentive to encourage prompt payment. Equally, you can penalise late payers – legally, you have the right to charge businesses or public sector organisations interest if they miss payment deadlines. However, this tactic is best used sparingly as it can damage your chance of getting repeat business.
Ensure you set out a clear procedure for chasing clients – you don’t want to end up writing off debts because you weren’t persistent enough. Non-payment of an invoice should be followed up quickly by reminders at set intervals and you need to make sure you keep up to date with who owes you money.
It’s really important to talk to your customers, because although you want to make sure you are tough on late payments, mistakes do happen. Try not to jump to conclusions and pick up the phone with an open mind – it might even result in a better relationship with the customer.
Most importantly, keep track of who owes you what and when it is due. It may be laborious, but it is the key to keeping your cash-flow – and therefore your business – in the black and out of trouble.
By Mike Odysseas, a member of The Entrepreneurs Forum and MD of Odyssey Systems
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