Cashflow keeps business in business and, without proper management and control, a shortage of cash can lead to business failure for even the most profitable of businesses. This guide will show how you can prevent or reduce the likelihood of being paid late and therefore minimise the chances of having to spend time and money chasing overdue debts.
- Terms and Conditions
You don’t order goods without knowing when they’re going to be delivered, and you shouldn’t supply goods or services unless you know when you’re going to be paid. You should make your customers aware of your terms and conditions from the start, e.g. when they first place an order or when you send them their first estimate or quotation.
- Issue Invoices Promptly
Make sure that you invoice your customers as soon as possible; the sooner you send your invoice, the sooner you receive your money. Delaying all of your invoicing until the end of the week or the end of the month only delays the money getting into your bank account.
- Confirm Receipt of Invoices
A couple of days after you send an invoice, give your customer a friendly phone call to ensure that the invoice was received, they agree with the amount and that they are aware of the due date. There’s nothing worse than chasing a late payment only to be told (truthfully or otherwise) that the invoice was never received or that there is an issue with the order.
- Monitor Late Payments
Make sure you are aware of all unpaid invoices and know as soon as they become overdue. If you only check for invoices that are overdue once a month then you’re causing a delay yourself. Also ensure that you have a consistent debt chasing procedure which will include sending monthly statements and collection letters once invoices become a certain length of time overdue. Many accounting systems can automatic this procedure.
- Deal firmly, fairly and promptly with late payers.
Don’t be embarrassed to ask for payment. Be assertive about collecting what’s owed to you; after all, it is your money. The first thing you should do when an invoice becomes overdue is to contact the customer. It’s not a nice call to have to make, but don’t delay it. Sometimes it’s easier to have someone else in your company make the call so you don’t have your working relationship getting in the way. Make sure you are aware of your rights. Late payment legislation allows for interest to be charged on overdue invoices.
- Be ready to take payment.
You may well get the customer to agree to pay you all or some of what is owed. If they offer to pay by cheque, be aware that this could be a stalling tactic. You could end up back at square one if the cheque doesn’t arrive. If you are set up to take credit card payments, then try to take a card payment over the phone. If you can’t take card payments, then look into it as an option.
- Prevention is better than cure.
If you follow steps 1 to 3 above, then you will less often need to follow the other steps. It’s better to consistently follow steps 1 to 3 and ensure you’re paid promptly than it is to have to spend time chasing late payers.