Late payments from customers are a frustrating obstacle to managing your business’s cash flow. Read our guide to the steps you can take to deal with overdue invoices.
Any business owner will tell you that they have experienced late payment of an invoice at some point.
According to the Federation of Small Businesses, one-third of payments to small businesses are late, with the average bill amounting to £6,142. If small firms were paid on time, the economy could benefit by roughly £2.5 billion per year, and 50,000 more enterprises could remain operating.
Unpaid invoices can have a big negative influence on a company’s cash flow; thus, what can a company do to lessen the likelihood of late payment?
Research your customers
If your clients are other businesses, examining a potential client’s credit history to see if they have a history of late or missed payments will alert you to any potential issues.
You need to convert leads in order to sustain and develop your business, but that doesn’t mean you should do business with anybody who walks through the door. Untrustworthy customers can soon cost your company a lot of money.
State your terms from the start
When you agree on payment terms with your client before you begin providing services, you can plan for the impact on your cash flow.
When it comes time to issue the invoice, make your payment terms crystal clear to avoid confusion.
Outline how much the client must pay and when they must pay it.
Issue prompt and accurate invoices
Send your invoices as soon as the work is completed (or sooner if part of the agreement), and make sure they are complete and accurate. If you make a mistake or leave out key information, it may cause the payment to be delayed, especially if a busy accounts department does not notify you of an error.
- a unique identification number
- your company name, address, and contact information
- the company name and address of the customer you’re invoicing
- a clear description of what you’re charging for
- the date the goods or service were provided (supply date)
- the date of the invoice
- the amount(s) being charged
- VAT details if applicable (the amount of VAT charged, your business’ VAT number, and a breakdown of the amount of VAT charged for each item on the invoice)
- the total amount owed
If your client asks you to include a purchase number, obtain it ahead of time and include it on the invoice.
Using invoicing solutions supplied by online accounting software firms like Xero and QuickBooks can assist in ensuring invoice accuracy and speeding up the payment process.
Make it easy to pay
You should make it as simple as possible for your customers to pay so they don’t have to use the excuse of not knowing how.
Make sure your complete bank information is included on every invoice, or provide more immediate payment choices such as online payment services like PayPal.
If you need to collect frequent payments from clients, Direct Debits are a smart option. You can let your clients spread the expense of your product or service over the course of the year. This should encourage people to pay on time, improve client spending, and increase customer loyalty.
Build good relationships
Developing strong and cordial client relationships might help to reduce late payments.
Invoicing is frequently an anonymous method for businesses that provide products or services to other businesses, utilizing email generic [email protected] addresses.
Attempt to obtain the name of a real person to whom you can speak if there are any problems or delays. If you’ve developed a solid relationship with someone and they can put a face or voice to the name, it will be more difficult for them to let you down and pay late.
Being a small business might also work in your favor. Larger corporations may be unaware of the consequences of late payment on smaller corporations.
Send regular reminders
Regular reminders will assist in ensuring that you get paid on time. Payment deadlines can be missed owing to a technical fault or because the invoice was really missed. In such circumstances, a short call to pursue may resolve the problem.
When following down payment, be courteous yet direct. Give them all the information they require, such as the invoice number, the date the invoice was sent, and the due date.
Speaking on the phone rather than sending an email can be advantageous because you will be certain that the customer is aware that your payment is late.
If a customer continues to refuse to pay despite your best efforts, you may require the assistance of a debt collection firm.
TaxAssist Accountants collaborates with many debt recovery service providers who specialize in efficient and cost-effective cash collection.
They can provide advice and manage individual invoices as well as your full sales ledger.
Suppliers can collect your debts and protect key relationships by using competent mediation and professionalism to secure future business prospects.
Monitor persistent late payers
Keeping track of customers who frequently pay late is a crucial element of managing your cash flow.
Understanding customers that consistently miss invoice deadlines may help you anticipate possible cash flow gaps and take action to locate other business possibilities to address them before they become a serious problem.
You can utilize aged debtor reports to identify which customers owe you money and how much they owe by using online accounting software and working with your accountant.