Avoid payment headaches with good invoice processes
Setting up in business or taking the business to the next level may well have been the new years’ resolution or goal for 2015 for many budding entrepreneurs. With the economy on the up, restrictions on access to funding easing and a great looking economic outlook regionally in the Midlands – with opportunities in many sectors – it’s certainly an exciting time to be in business or just starting out.
There are many pitfalls that will stop SME’s in their tracks each year though, and one that tops the list is the effect of late payment, which can be crippling on a small business. A recent Yougov poll showed that this affects 85 per cent of SMEs. This is a long-recognised issue and one that the government set out to try and tackle with the launch of the Prompt Payment Code (PPC) – a charter for businesses to sign up to which formalises their pledge to pay up within agreed timescales. The problem with this is that the scheme is voluntary, so whilst it is a step in the right direction, it is by no means the be-all-and-end-all solution to a widespread problem.
It is for this reason that we advise clients to take practical steps towards pre-empting any problems, and putting in place processes that will minimise the chances of late payment occurring. With some careful planning, good communication and following through of invoice reminders and chasing, issues could be completed avoided.
For instance, when dealing with a company which has a purchase order system in place, it is vital to obtain a PO number that the invoice includes, so that invoices can be easily attributed to the right payment authorisation at the customer’s end. This will facilitate smooth processing of the invoice and prompt payment. We have had countless occasions of clients not being aware or familiarising themselves with the payment process of their customer, and then wondering why the invoice is slipping through the net.
Regular communication about payment terms and payment deadlines is also crucial. Checking the invoice has been received and is being processed appropriately, a gentle reminder as the payment date approaches and flagging it up early if the payment date has passed are all good practice in resolving issues as quickly as possible.
Make any clauses that involve a late payment charge clear at the outset of the relationship, as part of your business terms. This will avoid any bad feeling and prevent jeopardising a customer relationship. Keep a log of the invoice sent date, chasing and any correspondence and ensure that if the customer queries a bill, it’s dealt with quickly so no further hold-ups are incurred.
In addition, carrying out appropriate checks to ensure customers have a clear credit history is always advisable. Our Business Protect solution offers comprehensive checks on many aspects not checked by other similar service providers, so if in doubt it’s definitely worth considering to avoid a huge headache and debt later on from non-payment of invoices.
Using lawyers to get payment on unpaid invoices can be a costly and lengthy business, so following the above guidelines to head any issues off at the pass is the best route to take. Prevention will always be more effective than cure.