How to avoid late payment problems

The easiest way to avoid late payments would be to never start a business.

But for those of us that enjoy the ups and downs of running a business the single most important thing a business owner can do to ensure the smooth running of the company, is to ensure that cash flow is managed properly.

By far and large the single biggest killer of small business in the UK is, and will likely always be, poor cash flow management, most often brought on by late payment issues.

There are a few things however that you can do to ensure that late payment problems do not threaten the future of your business:

Ensure all customers are understand your payment terms
From making sure your sales people and any other client facing staff give accurate information to your customers at contract/agreement level to the often missed practice of stating the payment due date on all invoices issued by your company, it is vital that you can, with confidence, ensure your customer has the right invoice and knows when payment should be made.

Make sure you manage your sales ledger
This is where many firms, small and large come unstuck. Many small businesses don’t have the staff or resources to efficiently and effectively manage a sales ledger and it is often to the detriment of the firm. Small firms often cannot afford to recruit experienced in house credit control staff but it is unfathomable that a business should invest so much resource in fulfilling an order but then not bother to chase for payment? But it happens.

If you cannot afford to recruit an in house professional, you need to outsource credit control functions to ensure that those customers who can pay, do actually pay your invoices, and on time. Customers wont usually volunteer to pay on time if not pressed (they have their own cash flow problems to worry about) so the longer they are left and the longer your invoice goes unpaid, the greater the chances of your invoices becoming more than just a late payment problem.

Whilst late payments disrupt cash flow, non payment isn’t exactly a position to revel in.

Use Invoice Finance
Aside from some invoice finance facilities having an outsourced credit control function as part of the package, and options to insure against bad debt (non payment, not just late), the benefits of invoice factoring or invoice discounting are far reaching.

With the day to day management of a sales ledger out of your hands (with factoring) you can focus your resources into running the business and fulfilling orders and finding new business, not wasting time chasing payments.
With the effects of late payment effectively removed with invoice finance, your payment terms can reflect the value of your customer without impacting on your cash flow.

Without using invoice financing, 30,60 or 90 day terms can cause cash flow problems for the most liquid of businesses, but with an invoice finance facility in place, some 80-90% of the sales invoice value is advanced typically within 48 hours of issuing, and in doing so, effectively reducing your terms to 48hours but still giving your customers the time to pay that keeps you competitve and them happy.

Payment terms can be a deal breaker/maker with customers wanting to stretch them as far as possible and delivering firms wanting immediate payment. With invoice finance, this tug of war is removed.

For details on how Invoice Factoring, Invoice Discounting or perhaps other small business finance such as bridging loans can  avoid the impact of late payments, improve cash flow and perhaps fund growth or asset purchases simply get in touch or request a call back via the contact page of the site.

Tagged ,
Bookmark the permalink. Both comments and trackbacks are currently closed.