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With forecasts for our economic climate currently somewhere between gloomy or overcast with a slight chance of growth, it’s easy to see why. All this being said, it’s little surprise we now begin to see businesses tighten purse strings, become more cautious and take that little bit longer to pay bills.
If the recession in years of the late noughties taught us anything it was, cash is king . Chasing down late payments is an endemic problem for SMEs at the best of times but, with economic uncertainty rife it now needs to be a post-Brexit priority for business owners to ensure their company remains healthy.
Our late payment culture in the UK can have a significant impact on a businesss cash flow and overall performance as payments are often delayed. At some point or another it is inevitable that as a business owner you will have your fingers burnt by late payments but once it’s happened, what can you do
Here are some crucial steps to take to insulate your business against the associated issues of late payments and if you’re owed money how to get it.
Keep communication lines open
If a payment becomes overdue, the first thing you need to do is communicate with your customer. At this stage, your customer should have received your invoice, plus a follow up email to remind them that their payment is due. If it is past payment, try contacting them again to see if they do have plans in motion to get your money to you.
Working together with customers who are struggling to pay you can be more beneficial than arguing with them and demanding money immediately or threatening legal action.
By keeping communication streams open and allowing a bit of leeway, there is more chance of retrieving your money than if the relationship turns sour. Remember, communication is key.
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Credit checking
If you havent previously credit checked your customer, do it now. Firstly, check their Days Beyond Terms (DBT) to see how long they usually take to pay their bills. If you feel you can’t do business with a company who will always pay you late, you could either adjust your cash flow to accommodate their payment terms next month, or you could try cutting the payment terms to a shorter term.
For example, if the companys DBT is ten days, and you want to get paid within 30 days, you could change your invoice term to 20 or less days. If none of these options are appealing to you, you may have to stop doing business with them all together. Their company credit report will give you all the information you need to make this decision.
Continue reading on the next page for the remaining measures that can be taken to manage debt recovery and the precautions that can be taken in the future.
Debt chasing letters
If communication with the company has failed and you have yet to be paid, you could start to send debt chasing letters. These can either be written by yourself or you could have them professionally sent for you.
Debt recovery and the legal route
If debt chasing letters still receive no response from your customer, it may be time to go down a more serious route. Getting debt recovery or legal firms involved can be costly, so it may be worth finding out how much it would be to get your money back vs the cost of the actual debt.
We advise you start with adebt recovery firmAs it is the most cost effective option. Many debt recovery firms work on a no win no fee basis and it can often be quicker to receive your money compared to going through the courts.
If a debt recovery firm still doesnt work for you, taking a company to court could be your last resort. It is worth keeping in mind that depending on the hours spent on your case costly solicitor fees could mount and there is still no guarantee you will get your money back.
Chasing your payment dont get left behind
Set future precautions in place
Getting hit by a late payment can be damaging for a company, especially if they arent expecting it. Setting due diligence in place, like consistently monitoring a customers credit score throughout the duration of your business relationship can help you reduce your chances of being stung. Its also important to remember, just because a company has a good credit score one month, it doesnt mean that will be the case going forward. After all a businesss circumstances can quickly change in this day and age.
Embrace technology
Technology can help businesses to build a 360-degree view of their debtors. Modern online business information systems like Creditsafes can allow companies to check all the financials, payment habits and payment trends of the businesses they deal with at the click of a button.
In times of tighter economic conditions, being ahead of the game on your customers payment habits and key financials is crucial. Having the correct systems and processes in place empowers your business to forecast your cash flow and be prepared for when their payments will reach your business, allowing you to focus more of your time on driving growth.
Rachel Mainwaring is operations director at Creditsafe
Reputation counts for a great deal in the business world, so it’s perhaps surprising that research has found 78 per cent of British businesses have paid suppliers late.
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