While the UK government is still consulting with experts on how late payment penalties should be enforced, there is a real danger that small and medium enterprises (or “SMEs”) could face financial trouble from slow payers and bad debtors. Research has found that UK SME businesses are owed £30.2bn and 85% of companies experienced significant late payment between 2011 and 2013.
This can be a serious problem for small businesses. A lack of cashflow can mean the difference between a business growing or failing.
Not “If It Is Going To Happen, but When?”
One of the frequently made mistakes is that business owners do not consider what they will do when someone does not pay. Often they’ll get to the decision point, be indecisive and then let the matter continue on too long.
If this is you, you will likely lose control of the situation and it will make it harder for you to obtain the money you are rightly entitled to. Instead, you need to have a clear set of procedures right from the start to be sure of how you are going to minimise bad debtors and how you can process those who don’t pay on time to ensure timely and cost effective collection of your payment.
Here are our 4 suggestions to do just that:
1. Timely Invoicing
It is imperative that you issue your invoices on time and to the correct person. When invoices have initially been sent to the wrong email address, they can and will go missing when forwarded onto the correct person – or not be forwarded on in the first place. This can be frustrating for you, but it can also be a good excuse for them to claim they haven’t received it and therefore spinout their payment time. You may also consider sending hard copies by snail mail too.
2. Phone The Bad Debtors
Emails and letters are fine, but you can never be sure your message has been read. Instead you need to focus on the person in charge of the payment process. Be sure to have their direct number, don’t hesitate to speak to them and chase them when one of their staff members tells you the manager will call you back…and they don’t.
The sole aim of the phone call is to encourage payment; and there are several ways to do this. Firstly, you must understand why they haven’t made the payment in the first place and then determine if they are struggling to find the cash to pay.
If you have tried this and payment is still not forthcoming, you need to explain what will happen if you don’t receive the money owed to you… and receive it soon. In the first instance, this could mean that you will stop supplying them. After this, it will mean legal action; you want to avoid threatening this if possible.
3. Don’t Threaten Them
You should avoid threatening them, which can be difficult, especially if they haven’t paid, as threatening them in the first case of non-payment is only going to make future work together harder.
If they still do not pay and you have tried talking to them, then you must follow through on any threats that you have made. Not doing so will erode your credibility and will only encourage them to continue to withhold your funds.
4. Employ A Good, Part Time Credit Controller / Manager
This is all better handled by a highly experienced credit controller. Whether this person is in-house or outsourced, they will be trained in credit control negotiations and be better positioned to collect bad debts on behalf of your business.
Part time credit controllers can be very cost effective and can also undertake other financial duties. This makes them one of the best financial investments you can make for your business.
Bad debt is not good for businesses. Yet the chances are your business will have a missed payment from a client at some point. Ensure that you are prepared, have a set policy for late payments and follow through with it. A good credit controller is critical and will minimise the financial interruptions from those who haven’t paid their invoices.