A typical business has an excruciating wait of 68 days for their clients to pay. That’s a worrying rise of ten days compared to two years ago.
Clearly, the traditional ways of managing late payments aren’t working. But why?
The ‘solutions’ that don’t solve
Credit controllers have long been responsible for chasing invoices and managing late payers. They’re facing strain in the current recession.
The problem is that they’re expensive; the average controller demands £33k in salary alone. So, if you can’t afford this cost, you’re forced to chase customers yourself. That’s a distraction from growing your business.
When the recession of the 1980s first made credit control challenging, invoice financing, (“factoring” or “discounting”), became a popular way to get money in quicker.
Discounting agencies offer sellers 80-85 per cent of an invoice’s value up front. They’ll charge a fee of around 3.5 per cent and pay the remainder when the debtor does.
It’s an alluring option, but it’s fundamentally flawed. If you sell an invoice to an agency, what incentive has the client to pay the full amount on time? And what about the next invoice? It can be a dangerous trap to fall into.
A genuine, long-term solution
What you need is to eliminate the problem itself, once and for all. The trick to success is finding a solution that saves both you and your customers time.
Many businesses are discovering that switching payment methods can do just that. Both Direct Debit and credit cards guarantee funds will come in on time, and in full.
Credit cards work for both parties for large, one-off payments. They let customers retain the credit they want, whilst you are paid on time. They’re brilliant (if expensive) for one-off payments, though not so hot for forgetful customers making regular payments.
Direct Debit meanwhile lets you bill customers whenever you need to, without them lifting a finger. All they need do is sign a mandate, which can be done online.
So while you are paid on time, every time, those forgetful customers can sit around and continue to forget. If you’re taking regular payments from customers, it’ll guarantee you’ve always got the funds you need.
Carl Mainwaring, CEO of one of the UK’s largest driving school franchises, found that he “reduced the time spent on accounting by 80 per cent just by switching to Direct Debit.” He used the additional funds to double the size of the business in just one year.
Carl took control of his debt. You could too by choosing a payment method that takes the hassle away from your customers.
So stop waiting around for the money you’re owed – because it’s not worth waiting for.
Maya Ross is marketing director at online Direct Debit payment provider GoCardless.
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