14 June 2022
We all know the feeling. It’s been weeks and that invoice still hasn’t been paid. You’ve emailed, called, and confirmed the payment terms but still nothing. It’s not a small issue, with 30% of businesses issuing redundancies directly linked to late payments. So, what are your options when people just won’t pay up?
The first step is to expect them. Over £61 billion is owed to small businesses in the UK and nearly 4 in 5 businesses are left waiting over a month from their payment terms. Being prepared is the best line of defence. Protect yourself by setting expectations clearly with clients before any goods or services change hands. Don’t hide this detail in the small print – confirm your expectations before moving forward.
Make sure you have the right information. Check that you are sending the right information to the right people and that they have received it. The last thing you want to happen is to damage a relationship because of a miscommunication.
For large invoices (large businesses are the worst offenders of late payments so this is especially true for them) your clients might be more likely to pay early if they’re given an incentive. You could start with a 3% reduction if paid within 7 days, then stagger it down to 1% if paid within 21 days. This isn’t for everyone, and you may feel like it devalues your work which is understandable, so you could go the other direction.
You might prefer the stick to the carrot and decide on charging for overdue invoices. As long as you are clear about this from the beginning and clients understand when these charges will come into effect then late fees can be a good incentive to push through payments. Either you will be paid on time, or the fee will cover at least some of the extra resource it takes to chase those invoices.
Cash flow is a persistent issue for a lot of businesses. In fact, 1 in 7 business owners admitted not being able to pay staff on time because of poor cash management. Offering instalments can take the burden off your customers and give them an opportunity to pay on time by taking some of the planning out of their hands.
Unfortunately, no matter how much preparation you do or incentives you give, some people will always pay late. So, what are your options for dealing with those late payments once the clock runs past the deadline?
Using a factoring service is an option, albeit one that has some drawbacks. In essence, you would sell an invoice to a factoring company who would then loan you a percentage of the payment. They then go and collect the payment themselves, take a portion plus some interest on the money lent to you, then forward you the rest. It gets money back in the business quickly, but the fees can add up. Factoring services will usually credit check your customers before agreeing to buy a debt, which could be helpful information, but it’s a very involved process. You also lose control of your relationships by trusting an outside entity to handle potentially sensitive transactions.
It’s not just your money on the line. Over 62% of small businesses reported spending time chasing invoices each week. Getting the right process in place will reduce this time and make sure that invoices don’t get missed. Using tools like Chaser will help you build an automated system which saves time and helps you get invoices paid, on average, weeks earlier than leaving it up to chance.
Persistence is key with an issue like this, and let’s face it, you didn’t get in business to spend your time sending reminders and chasing bills. We can help. By setting up a consistent and reliable system for credit control for Christopher Kane, we brought in £440k of unpaid invoices in only a few months. Having someone you trust on the case will also lift the burden when it’s time to take the next step. Whether that’s legal action, getting a debt collection agency or factoring service involved, or just writing off the loss – we can help you make that decision with a wider view of your business and how it will affect it.
No one likes getting paid late. Having to push for payment while managing your relationship causes an immense amount of stress, without even considering the financial implications. Getting an expert involved will protect your numbers, your customer relationships, and your nights sleep, so let us take it off your hands.