5 Steps To Avoid Late Payments
Late payments are a huge problem in the UK. Research from Hitachi Capital UK found that a staggering £51.5 billion was estimated to have cost UK SMEs in 2019 with the actual figure expected to be much larger. A third of SMEs have said that they had experienced late payments of at least £10,000 in 12 months.
The Credit Protection Association (CPA) also uncovered some eye watering insights; UK SMEs are facing costs worth £4.4 billion per year just for collecting outstanding debts!
Late payments can quickly leave your business finances looking bleak. Your cash flow will be heavily hampered which will impact on how you operate, how much cash you have on hand to grow your business, you may have to rely in loans with high interest rates and if things escalate, you’ll be paying debt recovery costs to recoup what you’re owed.
To avoid the difficulties associated with late payments it’s vital you do all you can to make sure you get paid on time.
Here are five steps you can take to help avoid late payments and improve your credit management process.
1. Business Credit Check
One of the most significant steps you can take to minimise late payments is through effective business credit checks. Credit checking new and existing customers will give you an insight into their purchasing behaviour, track record of paying on time, how likely they are to pay you on time and how much credit you should give in proportion to risk.
With Know-it there’s no excuse for lax business credit checking process. Check-it provides data and intelligence to deliver company business reports and monitoring to give you a real insight into your customers to help minimise the risk of late or non-payment.
Using Check-it will give you a wealth of data in seconds from reliable sources like Creditsafe, Companies House, The Gazette and Unsecured Creditors to enable you to make better informed credit management decisions.
2. Setting Credit Terms
Setting appropriate credit terms is another stumbling block we see many businesses trip over and this is a direct knock-on effect from poor business credit checks.
Once you’ve analysed your customer’s credit report you should have all the information you need to set appropriate credit terms that satisfy your customer but are manageable for your customer to repay so that you avoid the risk of late or unpaid invoices.
Once you decide on a suitable credit limit you need to set out how long your customer will have to pay the full amount, this typically tends to be 30 days. However, this can change depending on business, industry or the size of the order. The key thing is not to leave yourself vulnerable, if you need paid within 14 days then don’t give payment terms of 30 days.
3. Getting Your Invoicing Right
Invoicing is an area where we see businesses being complacent regularly. Failing to get your invoicing right will have a direct impact on how soon you get paid and minimising the risk of unpaid invoices.
At the bare minimum, your invoices should include:
- Unique identification number
- Your business name, address and contact information
- Company name and address of your customer
- Description of goods or services provided
- Date of the invoice
- Date goods or services were delivered
- Amount being charged
- VAT amount, if applicable
- Total amount due
- Payment due date
- Payment methods accepted and instructions on how to pay such as BACS details
It’s surprising how many invoices we see that don’t include key information such as instructions of how to pay. Missing out key details like this leads to delays in payment and sometimes customers will look for any excuse not to pay so possibly may not alert you to any information that’s missing that is stopping them from paying your business.
Some companies need to receive invoices by a particular date to ensure payment on a particular month according to their cheque runs. You may also need to send your invoice to a specific person or department and it’s down to you to be proactive and find this information out to ensure you’re paid swiftly.
It should come as no surprise that the sooner you send your invoice, the quicker you’ll get paid so make sure to get your invoice sent ASAP!
4. Send invoice reminders and chase payment
Payment of your invoice will likely be a far higher priority for you than your customer so you may not be in the thoughts of your customer as you approach your payment date. As you approach your due date it’s best to send a gentle invoice reminder to your customer so that you’re at the front of their mind.
For the more sneaky companies it also helps avoid the “sorry I forgot” excuse, we’ve heard that one before!
Chase-it allows you to schedule and send reminders to your customers on a date and time that you choose with our overdue payment reminder service. Now there’s no need for keeping those reminders in your diary, Know-it takes care of it all automatically!
5. Harness technology and automation
The technological developments that have impacted the way we live and work over the past 20 years have been astonishing. And this rate of change will only accelerate going forward.
Thanks to digital infrastructure, automated processes, artificial intelligence and machine learning we can do so much more with less resources and time. Social media has democratised mass communication, it’s now easier for businesses to reach their audience at scale, something that only large companies could do via TV, radio and print not too long ago. SMEs and sole traders no longer need a bookkeeper as such, they can use accountancy apps to handle their finances with documents and reports from these platforms being accessible from anywhere in the world.
Advances in technology have had a direct impact on customer expectations and businesses that have failed to keep up with these changes have been left in the cold. Notable examples are Topshop and Debenhams, two titans of the high street who failed to implement an effective digital strategy and got involved in eCommerce too late. Now their assets have been picked up by competitors for “pennies”.
Now the full credit management process has been revolutionised thanks to technology and automation, allowing you to ensure you get paid quicker and avoid unpaid invoices with Know-it. Check-it allows you to effectively credit check by bringing data from multiple, reliable sources into one easy to read dashboard.
Minimise debtor days with Chase-it. Automatically send SMS, letters and email chasing payment on with your own custom schedule and templates so that your communications don’t look automated!
Chase-it works on real-time data that is synchronised from your accountancy package so you’re never chasing a payment that has already been paid. And by logging your expected payment dates in the platform you can see at a glance when your customers have paid and when you last chased them for payment, saving you a ton of legwork and time.
Processes become much easier when all your tools work together. Know-it seamlessly integrates with all leading accountancy packages including Xero, Sage, QuickBooks and FreeAgent. Connecting your accountancy package couldn’t be easier can takes just seconds. One you connect Know-it you’ll see a complete picture of your credit management process from credit check to payment.
Collecting Overdue Payment
As we discussed at the top of this article more and more businesses will experience overdue payment and may need to get help recovering commercial debt. Collect-it will provide you with instant quotes to recover your overdue payment.
Collect-it consolidates your customer’s credit history using information from Check-it and Chase-it and data from your accountancy package to build your case and allows you to track your case from the Collect-it dashboard.
Using Collect-it your debt recovery will be handled by leading commercial debt specialists Darcey Quigley & Co. who have 14 years’ experience collecting overdue payment for businesses all over the world.
Want to get paid quicker? Effectively manage all your credit management, mitigate risk and better understand your customers with Know-it. Get 30-days free now!
Declan is our content writer here at Know-it!
He is committed to educating readers on the importance of credit control and how technology can help streamline processes for SMEs whilst providing actionable help on how businesses can mitigate credit risk, reduce debtor days and boost their cashflow.
Connect with me on LinkedIn!