Small businesses are carrying billions of pounds worth of unpaid invoices. If you’re a small business owner, you’ve probably been paid late before; well, you aren’t alone! Often, late payments put pressure on your cashflow and can cause a lot of worry and stress. Here are a few simple steps that could help fix the problem.
-Results from the latest Zurich SME Risk Index show that more than half (52%) of Britain’s small-and-medium sized enterprises are owed in total an estimated £44.6 billion in late payments (finextra.com).
-A quarter of businesses need an overdraft to deal with the cashflow shortfall.
-Late payment slows growth – it can lead to problems making payroll, issues with paying bills and an increased borrowing.
Why do small businesses get hit harder?
Small businesses are regularly paid later than big companies and they have fewer cash reserves to cover the late income. The reasons it may be harder to chase debtors is because:
– You aren’t as scary as larger businesses.
-When customers get a lot of bills at once, they will prioritise the larger businesses first. Corporations have a reputation for enforcing penalties and referring unpaid invoices to debt collectors.
-Small businesses often don’t have a dedicated recourse for chasing debtors meaning that you may be out of touch on which clients owe you, and don’t follow up on payment.
-Lack of time – chasing debtors takes time. You have to check your books, find out what’s unpaid, and decided what to do about each outstanding invoice. It’s normallya distraction from core business.
-Financial tension in a working relationship.
How to get paid quicker:
-Modernise your payment terms – Set short payment terms and you’ll be surprised how many will settle their bills instantly. Many clients will use instant payment platforms such as electronic funds transfer or credit card.
-Set an expectation – start with a payment term time of 7 days. They may negotiate more time, but starting with 7 days will set an expectation.
-If a customer has missed the deadline, then you can charge a late payment fee. Not surprisingly, late fees aren’t very popular with clients, so you could get some kickback.
-Create incentives – A more positive approach might be to offer a discount for prompt payment. It doesn’t need to be much. The lure of saving money is a powerful motivator, even if it’s just a few percent discount.
-Invoice quickly – your client can’t start to process your bill until they have it, so get your invoice on the system ASAP.
-Chase the payments – You cannot assume invoicing is done once the bill is out of the door -you’re going to have to make sure that the debtors processing it. HOWEVER, smart business software will chase the debtors for you as well as send your invoice electronically, report back when the invoice has been opened, tell you whether it’s been paid or not, alert you when the due date is approaching, and send a reminder to the client. Check out – Chaser – we use this in our business and can highly recommend it.
-Itemise your invoice – List the details of the goods or services in a way that makes sense to the client. If they have to contact you for clarification, you could miss the payment window and be forced to wait for the next ‘cheque run’.
Be sure to include:
–A description of the work or product you sold
-The date the work or product was delivered
-The quantity of product or hours of service involved
And don’t forget to state:
-Your payment terms (how long the client has to pay you)
-The invoice due date
-Any prompt payment discounts or late fees
If you need some extra help with invoices or getting paid quicker, then we are here to help. Give us a call on 01326 660022