By Gary Prince, Chief Strategy Officer at SimplyPayMe
Earlier in the year, a report by the Federation of Small Businesses found that 440,000 small firms in the UK suffered from the late payment ‘crisis’ and were almost forced to close.
Cash flow is hugely important for businesses – particularly small businesses and sole traders – and late payments can have a substantially negative impact on a business’s success. Gary Prince suggests these eight steps to prevent overdue invoices.
Agree on explicit payment terms
Make it absolutely clear from the offset that you have explicit payment terms that you expect your client to stick to. Include information on when the payment is due, when the payment will be considered overdue and what the consequences for late payments are.
A good tip for setting up these payment terms is to do some research into industry expectations, as well as think about your cash-flow considerations.
Verify your client
Running a credit check can let you know whether a client can pay you as promised and on time. Taking the initiative to run a credit check before agreeing to work with a client can help you determine whether to onboard in the first place which is a great preventative measure.
To successfully run a credit check, you will need to provide specific identifying information about a client, and you may also need their authorisation.
Draw up late payment policies
Make sure you have late payment policies in place, as this is another key deterrent to avoid suffering late payment from your client. Not sure what late payment fees should be? The Small Business Commissioner’s Office has created an interest calculator for you to use as a guide. Check it out here.
Consider any fees you’d like to put in place or if interest will be included in any late payments – this should create another deterrent to stop late payments.
Automate your payments
Direct payment platforms can offer you and your business great support by automating, not only payments but the processes around these payments.
This will minimise late invoices and reduce time spent on them – as the whole process from receiving the invoices to project management to payment collection is automated on your behalf.
Enquire about deposits or upfront payments
By receiving a deposit or an upfront payment, you can focus entirely on producing the work needed for the project. Asking for a deposit if materials and bespoke skills are required for the job or project is not unheard of and is commonplace in the building trade. If the job is expected to last more than a week or more and you are working solely on that job for a set time frame, then that is also a good reason to request a deposit to manage your money.
If you do decide to request a deposit or upfront payment, remember to keep these requests professional in manner and polite.
Stay organised and timely with invoices
You can minimise late payments by invoicing your clients immediately after the work you’ve taken on has been completed. This immediately notifies the client that you consider your part of the agreement complete, and they need to fulfil their end.
Set automatic reminder emails
A polite reminder email is another process that could be automated by direct payment platforms. These reminders will make sure your payment doesn’t get forgotten.
Create and maintain good relationships with clients
You can also help to ensure your invoices are paid on time by putting in the time to establish a good relationship with the person who handles paying your invoice. If you have a good relationship with this individual, they are more likely to pay you on time.
These steps help to ensure you get paid on time, efficiently and easily, so you don’t have to worry about a halt in cash flow as a sole trader or small business. Following these steps in a preventative manner to deal with late payments can help to keep your business on track.
