Late Payment Problems?

The Cheque is on the post? I’ve not had your invoice? The boss is on holiday/sick/playing golf today so can’t sign any cheques?

Whether the age old excuses above are actually true or not is one thing, but the type of excuses illustrated can only really buy an invoiced business a couple of days before the ruse has been rumbled. Assuming that each excuse isn’t used in turn obviously?

It is safe to say that there are varying degrees in the scale of late payments and although an invoiced customer may buy themselves a couple of days or perhaps a week with the excuses above, as an isolated incident the damage is hopefully not too severe.

But what if more than one customer plays these type of tricks and the majority of your customer invoice payments are late? Or if you are already offering 30, 60 or 90 day invoice terms which are bad enough but crippling you when not paid on time?

Then you need help.

There are two routes to tackle the late payment problems highlighted here. One is to attack the issue of excuses which if experienced across your customer base, is likely down to your credit management process. The second is to limit the damage caused to your business cash flow from the impact of the delay in payment caused by your standard invoice terms with your customers.

Effective credit control management is as an essential tool to your business as the product or service you offer to your customers. If you have invested resources (wages/materials etc) into fulfilling a customer order, the fruits of your labour can be quickly diminished by not making sure you get paid on time and in full for your efforts.

Chasing tails or chasing payments?

Chasing payments, incorrect invoicing, and lack of in-house credit management experience and skills, can render your customer billing useless. Small businesses often don’t have the resources to hire a full time person to manage the sales ledger and see that your credit management policies (if they even exist) are rigidly adhered too and as such the task often gets delegated to someone not suited for the task. Outsourcing this function is therefore vital to the successful working of your sales ledger.

By outsourcing the management of your sales ledger you have all the benefits of a professional team, dedicated to ensuring your customers have all they need to make the payment (e.g. a valid invoice free from errors and on time), and through their skills, credit management software and organisation, will ensure that excuses are a thing of the past. Outsourced credit control is a growing and vital sector with in the finance industry as many firms are seeing the value in hiring professionals, but not having the costs of recruiting an in-house team.

Bridging the gap

Even if all customer invoices for every UK business were paid on time and without a single delay the reality is that businesses would still suffer cash flow problems and face difficulties.

Cash flow is the balance of ‘payments in’ versus ‘payments out’, and the effective management of this relationship. With few businesses holding on to cash reserves and fewer still able to secure small business finance facilities from their banks in the form of overdrafts, there has never been a more difficult time of late to keep cash flow positive.

So with so much pressure to pay your own bills on time, and assuming your customer invoices are paid on time, there can still be an enormous gap between sales invoices going out and payments coming in due to invoicing terms.

Invoicing Terms

Every firm issuing an invoice would love to have payment the next day but on the other hand, every customer wants to delay the process as far as possible to maintain their own cash flow position. Even if payments are on time, invoice terms of 30, 60 or 90 days are not uncommon and often a necessity to win a contract or customer order.

It is these invoice terms which can cause havoc with cash flow as to deny the customer 60 days means they may simply go to a firm that will and the order is lost. In these circumstances most businesses will take the 60 or even 90 day terms rather than lose out on the customer order altogether.

Where overdrafts previously played a big part of managing month to month cash flow, invoice finance has taken over as the flexible and available small business finance facility for firms with active sales ledgers.

Invoice Finance Growth

Its not surprise that many of the high street banks now also favour offering invoice finance facilities over overdrafts as the perceived risk is lower. Yet, many UK small businesses (sme’s) are not convinced by the banks entering the arena and many are using the already established invoice finance broker network that is thriving in the UK.

Invoice Factoring and Invoice Discounting, the two main products within the invoice finance sector are a way of bridging the gap (time delay) of your customer invoices going out, and payment being received after the normal invoice terms you offer.

So, if you offer 60 day terms to your customer and an your invoice is for £10,000, your invoice factoring provider will advance you some 80-90% of the value of that £10,000 invoice (i.e. £8000 to £9000) within 48 hours of sending out the invoice meaning you don’t have to wait 60 days.

The remaining 10-20% less the fees is then the only part you have to wait the 60 days for, meaning that you can inject the vast majority of the value in your sales ledger back into your business within 48 hours of invoices being created, irrespective of invoice terms offered.

Factoring Finance are an invoice finance and small business finance broker with an independant, UK wide broker network. For any help or information regarding any of our commercial finance and/or commmercial protection services, simply get in touch for a no obligation discussion.

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