5 tips to managing late payers
More than half of the UK’s small businesses say they are facing late payments problems.
Many small businesses depend on client payments to maintain a healthy cash flow. Late payments can put pressure on the cash flow of businesses, waste precious man time and cause a great deal of stress, which can sometimes lead to insolvency.
Research from Bacs, the company responsible for Direct Debit, shows that small businesses are owed a total of £24 billion in late payments and a third said it’s down to the big businesses not paying up.
According to Bacs, small businesses have to wait an average of 39 days beyond agreed payment terms.
It is vital that small business owners implement some effective measures to avoid, or manage, late payers. Here are a few things to remember to encourage your clients to pay sooner rather than later:
1. Clearly print your terms and conditions.
For all contract you must include a document that clearly states all the terms and conditions. The client must sign and both parties should have a copy.
These terms should highlight the payment period for invoices, usually expected within 30 days, but your type of business could require is sooner or later. Be sure your clients know and have no excuse to pay late.
2. Offer and prompt payment discount
You could offer a discount to clients that pay early or pay upfront. Despite your profit margin being somewhat less, your clients will be encouraged to pay on time or before.
Example, if you generally require payment within 30 days, you could offer a 10% discount if it’s paid within 20 days.
3. Chase overdue payments
If you wait too long for a payment, your cash flow will suffer. It is important that you have a clear process in place so that you can coherently recover outstanding debts, without being too aggressive.
4. Claim interest
Small businesses can claim interest on overdue payments, supported by the Late Payment of Commercial Debts (Interest) Act 1998.
The Act states that a payment is considered 'late' after 30 days, whether a payment period was agreed in the initial agreement or not. Small businesses are entitled to claim interest at 8% above the prevailing Bank of England base rate.
Quote the on any invoices sent to clients and include it in your terms and conditions.
5. Stand firm
It is understandable that many small businesses feel vulnerable, especially when it comes to collecting debt from large businesses as they don’t want to risk losing a key client. However, it is for this reason that small businesses should follow the initial steps mentioned above. Show your big clients that you are professional and will not stand for unfair treatment.