If you are a small business owner you will be only too aware of the impact of unpaid invoices. If a payment is late it adversely affects your cashflow and therefore small business funding. The worst case scenario is that a vulnerable business could go under if its creditors do not pay when payment is due. New data from recent research by Lloyds Bank indicates that small businesses in the UK are currently owed in the region of £500 billion! The research found that there are regional differences in the amount of payments owing, with small businesses in the South of England due around £109,000 on average and small businesses in Scotland around £79,000.
These figures are not only a huge increase - around 70% in the last two years - but may increase further in 2016 as many small firms anticipate that more customers will demand deferred payment terms this year. Sometimes the client have a tight cashflow themselves so will try to put off paying you for as long as possible; sometimes they are just not very organised and may not get round to processing it in a timely manner. So if you are a small business owner what can you do to try and redress the balance and ensure that you are paid on time every time? Here are our Top Five Tips for reducing payment time for your invoices:
Start chasing early. This can be done before the invoice is even due. A polite reminder email that payment will be due by a particular date is perfectly acceptable and will help to keep your invoice visible to the client. Attach another copy of your invoice to the email so that there is no scope for confusion or error.
Be regular. It can be helpful to get into a routine with a client that you invoice them on a certain day of the month, ask for payment on a certain day of a following month and chase regularly in between on the same day of the week. Perhaps a case of “How To Train Your Client”?!
Get your timing right. Continuing on from the above, as you glean more intelligence about how your client operates, you can dovetail your invoicing procedure with that. For example if you learn that they pay most supplier invoices at a specific payment run during the month then you can time your invoicing so that you will start your chasing at the beginning of the week of that payment run.
Suggest a different method of payment eg direct debit. If you have a client for whom you are doing work on regular basis and the payments are late due to lack of organisation then a direct debit may not only help you to be paid on time but may make things easier for the client. Don’t be afraid to suggest positive changes as part of a healthy working relationship.
Know when to escalate things. You need to develop a consistent and effective escalation strategy and be open and upfront about this. This way a client will know that if they do not pay within a certain period of time, and that you have already chased it, that “something else” will happen. This may be that you get your accountant to chase on your behalf or apply a late payment charge or some other penalty; but whatever the detail, apply it consistently so that your clients know the score.
We hope that these tips help you to get more in control of monitoring invoices and payments and that they start to reap dividends. If, however, you are facing a short term cashflow crisis due to unpaid invoices then why not get in touch with us here at Fair Business Loans to see if there are ways that we can help you with your temporary small business funding needs.