Are you getting paid?

How frustrating is it when you deliver your product or service as requested by your customer, but then they don't pay on time? Quite rightly, you deserve the respect of others in business to be paid within the terms agreed.

Do you.....

  • vet your new customer before providing them with credit terms?
  • clearly communicate 'your' payment terms?
  • invoice in a timely manner?
  • follow up payment of your invoices before they actually fall due?
  • let your customers have extended credit just because they are customers and you feel they may not re-order if you chase them?

These are common factors that contribute to your effective credit control and influence whether you are paid on time or not. Cashflow, or in fact the lack of this critical element in business, is the main reason contributing to business failure in the UK. However, many businesses start with an idea of what they want to offer and how they will deliver it, but not how they will ensure they are paid.

After all, especially as a new business, you have to appreciate the cashflow cycle. It will take a period of time to complete the product or work for delivery, during this 'work in progress' you will attract some costs, before you are able to invoice, start chasing and actually get paid to then re-invest in the business or for your remuneration. 

As part of our Business Mentoring Programme and Business Improvement Programme, we work with our clients to create the platform and systems to ensure you are paid when your invoice falls due.

Surely, a good customer, from who you want repeat business, is one that pays you on time? 

As an example, if your profit margin is 10% and you have a bad debt of just £5,000, then you have to make an additional £50,000 worth of sales to make up the profit lost on this one bad debt. These are the real numbers in your business that are often overlooked and which we encourage our clients to consider.

So if we return to our bullet points above, what can we do?

  • Complete credit checks on all new customer or insist on cash upfront for all or part of the order.
  • As part of your new customer engagement, communicate your payment terms and if this is verbally, then follow this up in writing.
  • Ensure you invoice soon after completion, to quickly address any issues or potential reason for delay. It is also a good idea to have a way of checking receipt of the actual invoice, as this is often a reason given for delayed payment.
  • Often, the first chase is after the payment terms have expired. For example, you give 30 days to pay and therefore feel you can start chasing 10 days after the invoice was due (40 days after issue). A good practice is to communicate with the debtor before the invoice falls due to check they are in receipt and there is no reason stopping your invoice from being paid.
  • If you feel that you cannot chase your customers yourself, then consider outsourcing this task. When someone else calls on your behalf, then it provides you with some seperation between sales and credit control.

Of course, there are many other factors to credit control and this just touches the surface, but the key is to identify reasons why people may not pay you on time and create a systemised process that addresses that issue. This may be automated letters or emails or a diary note for a phone call. Whatever works to get paid on time should be a priority for you.

From our experience with our clients, here are a couple of innovative ways to aid getting paid:

  • Offer prompt payment discounts.
  • Increase your prices on bad payers, but offer a discount to cover the increase if they pay on time. 
  • Insist on payment upfront (in full or monthly direct debits) or in stage payments. As with a builder, ask for payments to reflect the work in progress.
  • Could you offer finance terms via a third party that enables you to be paid in full and for your customer to spread the payment? 

Finally, when collecting your cash, make notes of promises or comments made to which you can reference at a later point ,if needed.
Don't be afraid to threaten legal action, as some businesses don't pay until such notices are received and you are not their bankers.
Build a relationship with the accounts payable representative and be first on the list!