Small Business: How to Get Ahead of Late Payments

For SMEs, and small businesses in particular, incoming cash flow is paramount to survival and growth. If your debtors are late in paying and extend your debtor days, your operating capital can dry up or become insufficient to be able to pay creditors, buy new stock, produce items for sale, or even pay for business basics such as utility bills or at worse employee salaries. There is no magic formula to making your debtors pay your invoices on time, but there are ways you can get ahead of late payments to reduce such risks to your business.

Keep a Cash flow forecast

Many small business owners often make the mistake of thinking that a budget will provide you with your current show cash position, however this isn’t true. When you make a budget you identify which months you will make sales and the respective outgoings that you need to run your business. In both cases, payment may happen in the month following the purchase or sale, so cash inflow and outflow should reflect the payment cycle not the operating cycle. This will help you understand your cash position and allow you to plan much more effectively.

Check before extending credit

It is costly and time consuming to keep on top of debtors, chasing late payments, and managing cash flow, but it can help if you are careful about which companies you deal with.  Before agreeing payment terms with a customer, check their credit score. Company credit reports can provide access to information about the financial health of your potential customer and their history of making payments. It is difficult to turn away a potential customer for fear of late payments, but conducting some due diligence prior to partnering with certain customers can help you make an informed decision or even help define specific trading terms to safeguard your business.

Negotiate payment terms

There are no set rules for payment terms. Be flexible but set payment terms that suit your business’s interests. Your payment terms set expectations. You can set standard payments terms, but you can also be flexible with every customer. For example, you may require prepayment before you deliver goods or services to certain customers, or you may decide to ask for a deposit. You might also consider incentivise early payments by offering an early settlement discount.

Have a good, robust invoicing process

Be sure your invoices are produced in a timely manner and contain all the correct and relevant information. Delayed invoices or poorly created invoices can cause delays in them being paid. Ensure you send them to the right place and know the process. If they need to be authorized by a certain department or person, know who this is so you have a direct point of contact. The person who buys from you may not be the person who pays you. If you are supplying a large business, your customer may be far removed from the payment process, so it sometimes helps to contact them when your payment is late, so they can investigate and advise on when payments will be made.

Outsource your debt collection

You might consider outsourcing your debt collection to professionals. This removes the pressure from you and/or your staff, so you can concentrate on running your business rather than chasing late payments. A debt collection company are specialists in their field of which can manage the whole process from the point you produce an invoice to the time it is paid and can also manage the chasing of debtors if necessary.

Credit control can be a nuisance, but it is essential to have some sort of process to ensure you keep on top of bad payers to avoid having to write off unpaid invoices as bad debt. Whether you need ongoing support in collecting overdue invoices or assistance in collecting a one-off debt, feel free to contact Marshall Freeman Collections for a FREE, no obligation appraisal of your debt today or call 1300 136 271 to speak to a debt collection specialist.