1. Always chase late payers It’s incredibly important to make sure those who delay payment are reminded about it until they do pay up. Try not to set a precedent by allowing certain clients or suppliers to become persistent late payers.2. Make sure the right person chases late payments Don’t waste valuable senior time chasing late payments. In 17 per cent of entrepreneurial businesses, the owner-manager is responsible for pursuing tardy payment, according the Tenon Forum. Chasing late payment, rather than spending time growing the wealth of the business, can be counterproductive. Make someone else responsible for it.3. Have systems in place to chase for payment It may sound simple but many small businesses don’t have any systems in place to chase late payments. If you have an effective system in place, you can ensure that all outstanding invoices are paid as quickly as possible and those that still don’t pay up are pursued until they do. 4. Try not to be reliant on one customerMany business failures are caused by poor credit control. Research from the Tenon Forum reveals that close to a fifth (18 per cent) of entrepreneurs admit that late payment has forced them to exceed their overdraft limit, with five per cent claiming it’s given them a bad credit rating. If the majority of your business comes from one client or customer, a delayed payment from them could cause you serious problems. A single customer should amount to no more than 25 per cent of your annual turnover.
5. Assess the impactIt’s imperative to assess the impact of a late payment straight away so you can work out how to deal with it and the impact it will have on your cash flow going forward. In extreme circumstances, late payment can have catastrophic consequences for SMEs – Tenon Forum research shows that close to one in 20 entrepreneurs claim late payment has almost caused their business to fold. By drawing up cash flow forecasts, you can identify any funding gaps early and develop a plan of action.
6. Get to know your customersMake sure you run a credit check on any new customers. It might sound a little underhanded but it could save you a lot of time and money in the long-run. Take care not to offer each customer more than the amount of credit they’re allowed and review this on an annual basis.
7. Don’t be your customers’ bankSet the ground rules for payment early on and make sure these are enforced for all clients. Your credit terms should be clearly stated on all invoices so that your customers are aware. You should also have contracts from all your customers agreeing to these terms and conditions.
8. Pay attentionMake sure you’re aware of any reasons for the late payment, particularly when it comes to regular customers – make a judgement call on whether it’s worth upsetting a regular customer who has fallen a few days behind on a payment for the first time. However, if you find a usually punctual payer begins to fall behind on payments this could be an indication of financial difficulties for their business. 9. Ask for helpIf you find late payers persist in not paying up what they owe, consider outsourcing the chasing to an external agency for collection.
10. Cover yourselfIf you have concerns about debts and late payment, then consider insuring your debtor book. Although this can be expensive, it’s something you can budget for – whereas a large debt can occur without much notice and could have a much more serious impact on your business.