The UK is gripped by a late payment crisis, with the Federation of Small Businesses (FSB) estimating that the UK economy is losing £2.5bn annually to late payers.
Working hard to provide a first-rate service and top-quality product only to be left waiting months for payment can be devastating. The FSB estimates that 50,000 businesses are forced to close every year.
In the UK, the Government has responded by appointing a small business commissioner, Paul Uppal, to focus specifically on the issue. The Office of the Small Business Commissioner was launched in December 2017 with the mission of ensuring fair payments to small businesses.
Although this is a step in the right direction, there is plenty that business owners can do for themselves to encourage customers to pay up on time.
There may be many reasons for late payment, not all of them cynical. If you want to maintain a good working relationship with your client to ensure the ongoing flow of work, then having a major dispute over fees is not going to help.
There are steps that all business owners can take to make sure money is in the bank on time, regardless of whether you are self-employed or part of the growing SME sector.
This advice will help you boost your productivity, get paid on time, and ensure you remain on friendly terms with your clients.
Keeping on top of who owes you what and when can be challenging if you are not organised or using “old tech” paper and Excels.
With smaller businesses where the entrepreneur is doing the book-keeping, even with the right attitude sending out payment reminders and chasing down late payers can become time-consuming and soul destroying.
At the very least, implementing a diarising and reminder system will help you keep up to speed. Better still, automate as much as possible and give the rest to someone else to free up your time.
The good news is there are plenty of online tools available to support you in your efforts, many of which are free. Pandle, for instance, can automate the process of chasing and reminding clients for you.
It’s our experience that the majority of invoices aren’t paid on time due to disorganisation and an absent mind, rather than a desire to deprive you of your hard-earned cash. If you get a good reminder system in place and you will be closer to getting your hard-earned cash.
It is worth noting that some of the big supermarkets insist on payment terms of 90 days. If your invoice contains an error, they won’t tell you. They wait for you to chase after 90 days when no payment has been made, and then they tell you to resubmit it with the correct details for another 90 day wait. They aren’t the only ones – other large businesses are just as despicable. Being organised and having the details right the first time avoids such problems.
Create a payment policy
Be clear and up-front with clients about your payments policy. If you ask the client to sign it up front you can be sure you have an enforceable contract when it comes to chasing payment.
You may want to include details of penalties for late payments, or discounts to entice early settlements.
Invoicing customers and making sure they have all the information needed to pay you is a no-brainer. If you chase a customer for payment when the invoice has been sent to the wrong address, it simply makes you look unprofessional.
As well as having the customer name and address right, your invoice should include your business details with the correct VAT registration number, any purchase order number and your bank and other details.
Reduce your payment terms
Smaller businesses should keep a close eye on the number of days you quote on your payment terms.
If you are quoting 28 days as standard, see if you can reduce it to 14 or fewer. Some businesses are willing to pay in advance if you offer a discount, so think about these sorts of options and negotiate them at the start.
Get more money up front
It is worth considering whether to ask a client for a deposit on the payment should the work be canceled so you are not left out of pocket. If you have set a week aside for a client and the project falls through or gets postponed, you are left with nothing to show for it.
Consider whether it is worth asking for as much as 50% to make sure the work goes through?
Likewise, you may want to discuss phased payments with clients, particularly if you are working on a long-term project. Making sure you get paid for your time as well as the end product can be difficult. If you keep a note of hours and bill in phases you are more likely to be remunerated for all the work you have done.
Other options include selling your invoices and getting someone else to do the chasing for you known as invoice factoring (an important option if you need the cash, but you won’t get anything like what you’re owed), or pursuing a claim for payment legally, perhaps through the small claims court.
What if you still haven’t been paid?
Of course, there are those who simply don’t pay on time, no matter how friendly and professional your reminder service is. Unfortunately, these are the tricky customers who need a tougher line. This is particularly difficult if you want to keep their business.
There are a few different options you can take. Firstly, if they want more work done then you can insist that they settle their debts first. You can also insist on a different payment system going forward.
Taking control of your payments policy needn’t be a chore. By automating the system and handing it over to someone else you will find more time to focus on making your business a success and ensure you get paid for the services you provide.
Lee Murphy is the Founder of Pandle (www.pandle.com) the cloud bookkeeping software specifically for small businesses and the self-employed.