Getting paid on time doesn’t have to be stressful – follow our tips to improve your cashflow.
Ah, the downward spiral of late payments. A few late paying customers, and your suppliers, credit scores, security, and even your business could become collateral damage. A reported 84% of small businesses suffer from late payments, mainly from larger corporations.
Holland & Barrett are making a name for themselves outside of the world of vitamins and quinoa. This is due to a case concerning a small tech business who supplies H&B, who was left unpaid for a £15k invoice and only received payment 28 days after filing a complaint to the office of the commissioner. Recent data has surfaced that shows that it takes them 68 days, on average, to pay a supplier. Can businesses cope with being paid two months after a job’s done?
The problem with late payers:
Most obviously, late payments can leave you with a very glum-looking cash flow. Regardless of whether your customers pay you or not, your suppliers, your rent, your bills, your staff, everything still needs to be paid.
“My customers haven’t paid me yet!” is the entrepreneurial version of “the dog ate my homework!” Except the dog really did. And still, no one will listen.
This can put a strain on your relationships. Whether it be with your landlord or your supplier, how will you tackle that discussion?
Unfortunately, money rules the world. If later down the road you apply for investment, your cash flow will be under scrutiny. No matter your pitch or your ideas, investors will lose confidence in a business that has cash flow issues.
Furthermore, many businesses find themselves having to scrap or postpone growth plans in order to fit late payers into their budget. So your business suffers, too.
Time and effort
Generally, it consumes time and resources that could be better spent. Frustratingly, the time and energy that goes into chasing late payments could be spent on so much more, such as services that will benefit your clients.
Take action to overcome payment uncertainty
Never knowing when the cash is coming through the door can have lasting effects on your sense of security. How can you plan your finance, including business and personal, when you have no certainty about when you’re getting paid?
Switch up your payment systems
Evaluate your current systems. Are you giving your customers a suitable amount of time to process the invoice before you need it back? Ask your clients what would make the process easier for them, and make any realistic changes.
If possible, consider changing how you take your payments. Can you switch to a subscription model? Having your clients pay you by direct debit, even if only for a chunk of their outstanding payment decreases the amount of money you’re waiting on.
Be firm but fair
It’s a sensitive subject. Your customers could be having the exact same problem themselves… or they could just not want to pay you. Either way, you don’t want to chance angering them if you can avoid it. Stand up for yourself – you deserve to be paid. But don’t go severing any ties too hastily.
Be clear about your terms
Ensuring that you have strict written measures in place ensures that you won’t come up against problems.
Make sure you have a detailed version of your deliverables and payment dates/terms on signed paper on day one. This way, you can avoid discrepancies and appeals.
Offering incentives for paying upfront or early can be an easy way to encourage customers to make the effort. And also brings up the lingering question of “Should I charge late fees?”
And that’s a really difficult question. With the annoying answer of maybe? Charging late fees, although an efficient method, can risk and sever relationship ties. It really depends on the client.
So we offer an alternative. Looking at the half-full glass of water, offering a discount for upfront or early payments can be a safer and more positive approach.
If chasing late payments is taking up more and more of your time, why not speak to one of the team at Nephos for advice? We can support your business with all aspects of accounting and would be happy to help. Email firstname.lastname@example.org for more information.