Show me the Money!
Did you know that a third of payments to small businesses are received, on average, 30 days late? And the average value of each late payment is £6,142? Or that around one in five businesses had to write off unpaid invoices as bad debt in the last year, with an estimated average loss of £31,330?
Healthy cash flow is essential for any business to operate and survive. It’s easy to see the severe effect that late or non-payment of invoices has on a business’s ability to manage its day to day activities.
Of all the things that causes small businesses to fail a whopping 82 percent die due to cash flow problems.
You can spend a significant amount of time chasing overdue debts from customers who can’t or won’t pay.
As long as that money is in their bank account rather than yours it’s not adding any value to your business.
Here are six things you can do to reduce the risk of late payments and bad debts in your business and make sure that the cash flow is flowing in your direction:
Know your customer
You need to be confident that both new and existing customers will be able to pay their invoices.
You can get insight into your new customers’ financial circumstances from a credit reference data provider.
It’s important to continue to watch the payment history of existing customers too as their circumstances can change at any time.
Have clear terms and conditions
These are the rules that both you and your customer agree to abide by.
At the very least they should set out clear expectations for delivery of the goods or services you are providing:
• The how and when the customer should pay
• The consequences if one or both of you fail to meet those expectations
It is not enough to simply present your customer with these. They need to agree to them and you need to be able to evidence that agreement.
Be prompt and accurate with your invoicing
As soon as work is complete or goods delivered – issue your invoice.
If the work is going to take a significant amount of time to complete, consider interim invoices at key milestones in the project.
Make sure that your invoice details all the products or services provided and contains all the information needed to enable the customer to pay it promptly. Any error or omission can lead to disputes which delay payment.
Be fast and efficient in your dealing with disputes and queries
Queries and disputes can be genuine, but they can also be delaying tactics. Assign them to someone with the responsibility to respond to the customer directly. It’s good practice to have a documented dispute resolution process which includes responsibilities and timeframes.
Have a clear process to follow for chasing payments
Make sure no invoice gets overlooked by having a documented process that outlines the:
• Number of contacts – calls, letters, SMS or emails that you’re prepared to make to chase for payment.
This will make sure no invoice gets overlooked. Save yourself a bucket-load of time by having standard correspondence templates for chasing debt. Such consistency in your processes will make sure you treat all your customers with fairness and equality.
Have the right data at the right time
You need to know if everything you are doing is making a difference. You also need to work out what improvements you can make.
Having good reporting lets you to compare month on month your progress for key performance indicators such as aged debt, invoices paid to terms, and volume of invoices in dispute.
You’ll never eliminate late payments and bad debts altogether. But you can reduce both them, and the negative effect on your cash flow, by being better informed, better prepared and better organised.
If you feel your business could benefit from being better at any or all of these six activities but don’t know where to start then get in touch with us. We’ll give you a FREE, no obligation consultation to explore how we can help.