Late payments. Probably two words that send a chill down any small business owner’s spine. Chasing overdue invoices can be such a chore, especially if your day-to-day contact for the work is the same person who pays the bills. You spend all your time building a relationship with them, and then you’re worried about causing sour grapes if you are having to chase them for money.
Not only is it time consuming, but also quite worrying. The Federation of Small Businesses found that late payments are one of the top three reasons small businesses fail. The average amount owed to a small business is £30,000. That’s more than enough to send a business into insolvency.
But what can you do about it? Here are some tips to help reduce the stress of late paying clients, and to ensure they pay on time.
• The key thing is to be transparent and upfront about what your payment terms are. If clients aren’t too sure when they are supposed to be paying, then how will they know they are late? The number of invoices I have seen with no due date, and also no bank details, don’t give the client any excuse not to pay!
• Introduce automatic payments as the preferred option. Using systems such as Go Cardless are great, as it works on a Direct Debit type system, and you can also request a payment direct which the client will have to turn down/dispute if they are not happy, otherwise it is taken after a certain period. I use this with my clients, and I can’t tell you the number of hours it saves me! You do have to pay a nominal fee per transaction, but it’s worth it for the peace of mind it gives you
• Put a procedure in for late payers – and enforce it! I’m sure there are a number of you who have it in your contracts that you will charge a fee or percentage if your clients pay late, but how many of you actually stick to it? Thought as much. What’s the point of writing them into your contract? It sets a precedent to your clients that you aren’t willing to let their accounts fall into debt with you, and there will be penalties if they do. They’ll soon learn to pay on time!
• Have you ever considered a discount payment for those that pay early? Might not work for everyone, but if you can offer, say 5% discount if they pay you within the week, I’d definitely think about that one!
• Chasing payment isn’t the nicest job, but in the majority of cases, it’s a simple oversight on the client’s part, and once they’ve remembered, they’ll usually pay straight away. If you find having that conversation difficult to have, then think about using a system which can automatically send out an email once an invoice is late. Many accounting packages have this feature, I’m happy to recommend one if you need!
• Finally, remember that there’s a friendly neighbourhood accountant at the other end of the phone to help shoulder the burden. Not only can they help to plan in some contingency to prepare for clients that may pay late, but they can also take on the task of chasing for outstanding payments too. It can also help if someone independent makes those calls too, they can be a lot stricter as they don’t have that relationship that you do!
So if you are really struggling to balance the books each month, then please get in touch, I promise I can make the whole process a lot less stressful, and it’ll take a big weight off your mind!