Prevention is better than cure for late payment
With the government planning to introduce a small business commissioner to help small businesses and the problems they face, largely around getting paid on time, some business owners may be leaping for joy. The mediation plan is to tackle the imbalance between big businesses and small suppliers. It is reported that £26bn is owed to small suppliers.
The commissioner should help in the resolving of disputes, to preserve commercial relationships without having to get lawyers involved, provide information and guidance and help deal with complaints.
Companies that fail to make payments on time may be ‘named and shamed’ – as this kind of activity is claimed to be limiting growth and productivity for small businesses.
However, there are some actions that small business owners can take to help ease the problem of late payment.
Start as you mean to go on – when working with a new client or customer, set out the payment terms up front and get them agreed so that the expectations are set and managed from the outset to avoid any confusion or misinterpretation later on. Get the agreement in writing, preferably in a contract. Don’t make the mistake of thinking a friendly relationship and a verbal agreement is all you need. No customer should be offended by the requirement to sign a contract.
Send invoices quickly and according to the recipient requirements – again, at the outset, it is worth establishing whether a purchase order or reference is needed, what day of the month the customer makes payments to suppliers and who is the best person to address invoices to within the organisation. Clarifying the process from the start will pay dividends in the long run.
Be upfront – in the case of working with a new customer to which you are supplying goods, consider asking for payment up front for the first few orders, until a relationship has been established or until you have had any financial checks carried out (always advisable in the case of new customers – see our Business Protect service). Or, ask for a deposit to minimise risk.
Outline a consequence – to cover all bases, consider implementing a consequence for late payment, such as a one-off administration charge or an interest charge. This needs to be set out at the beginning of the relationship (within the contract) and fully explained to avoid a dispute later on. Encourage the customer to speak to you if they think a payment will be late for any reason, so you can plan accordingly if an expected payment doesn’t come in.
Consider invoice financing – if cash flow is affected by unpaid invoices, consider invoice financing to help ease the situation and provide a steady, not fluctuating, income.
For more information on invoice financing, or any other of our services such as Business Protect, call 01827 54944 and speak to Tessa.