Late payment remains a persistent menace for businesses in the UK, with the total amount outstanding recently estimated at £26bn.
One company falling behind on its supplier payments can have a devastating ripple effect along the supply chain and even force some firms out of business.
Keeping on top of your cash flow should be a priority for all businesses, so here are our top tips to preventing rising debts from sapping your financial buffer.
1. Clearly define your payment terms
Your credit policy should feature prominently on all contracts and invoices to customers or clients. Never just assume that you’ll receive payment after 30 days or at the end of the following month.
2. Perfect your invoicing
A disputed invoice means a delay in payment so be sure to prevent this with a well-oiled invoicing process that clearly states the goods or services being paid for, quoting any order numbers where possible.
Try and get into the habit of invoicing as soon as possible to prevent delays. Offering multiple payment methods and discounts for early settlements will also help to ease cash vulnerability.
3. Seek an account contact
Misplaced paperwork is a common reason behind late payment. To prevent this, always ask the person responsible for invoicing and whether they prefer them to be posted or emailed.
4. Manage debtors
It is crucial that you keep on top of your invoices. At a glance you should know the status of an issued invoice, which ones are about to become due and those which are already overdue.
If a payment fails to materialise then don’t be afraid to ask for it and outline any consequences for non-payment. Picking up the phone and having an informal conversation with your customer may reveal a very simple reason for any delay.
5. Charge interest on debtors
Although many small firms are reluctant to charge interest on overdue payments, you have every right to add interest or seek debt recovery costs. However, the interest charged should reflect the effort required to handle any arrears as extortionate sums can be challenged.
You also have the option to take legal action, however this should be seen as a last resort as a court case can quickly rack up huge sums of time and money.
6. Research back up funding
Seeking alternative funding during a lean period could be the difference in keeping your business afloat and it sinking.
Specialist lenders like ourselves here at Praetura Asset Finance have proven the lifeblood for many small to medium-sized businesses, with services like refinancing in particular, enabling companies to release much-need equity tied up in existing assets.
To see how asset finance could benefit your business, contact us today on 0333 323 7800.