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7 steps all businesses should follow to get paid on time

7 steps all businesses should follow to get paid on time

Cash flow matters to businesses of all sizes, and timely payments can cause a chain reaction for suppliers, employees, and other stakeholders. SMEs are particularly reliant on getting paid on time as they don’t have the vast reserves required to absorb delays.

However, those same small and medium businesses are not immune to payment delays. The average small business is owed £8,500 at any given time. Combine that with the need to chase an average of five invoices per company and the 90 minutes each day it takes to deal with them, and it can add up to a significant issue.

Prevention is often better – and cheaper – than the cure. With the proper procedures in place, even the smallest businesses can increase the likelihood of receiving payments on time with the steps outlined below.

Prevention is often better – and cheaper – than cure. With the proper procedures in place, even the smallest businesses can increase the likelihood of receiving payments on time

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1. Include payment terms with your invoices

Collecting payments becomes significantly easier when everyone knows where they stand and what to expect. For example, it’s standard practice to include a due date on invoices, but it’s also possible to take things a step further.

If you intend to outline additional terms, ensure you’re realistic and specific. In an ideal world, invoices would be paid within minutes of receipt. Those businesses do exist, but they’re few and far between.

Consider when you need to pay invoices associated with work you’ve billed for and endeavour to have it in your account in time and try to consider the needs of others. However, don’t be tempted to be overly generous either. Even invoices with extended payment terms of between 60 and 120 days can suffer, with an estimated 23% paid late in 2019.

2. Make it easy for others to pay you

From clients to suppliers, and everyone else besides, most businesses have a preferred way to pay. If you can make the payment easy, you are more likely to receive the expected funds on time.

Among the best ways to do this and avoid further delays is to create accounts with the payment services your suppliers and clients are most likely to use. An increasing number of businesses rely on direct bank transfers. This number increases yet further with the growth of services like Wise for fast, inexpensive international payments.

Beyond this, it may be worth holding business accounts with the likes of Stripe and PayPal to cover credit and debit cards and other transfer methods. Naturally, while cheques have declined in everyday life, some businesses still use them. They accounted for £272 million in payments in 2019, so it’s still worth including your postal address on your invoices.

Additionally, by including a payment link in your payment reminder emails, there’s really no excuse for your clients not to pay their invoices. With Chaser, each payment reminder includes a link to a dedicated payment portal where your clients can view all outstanding invoices and pay them using the payment method they prefer.

3. Don’t be shy about requiring credit checks

If a project or sale requires you to do something now, with payment down the line, there’s nothing unprofessional about finding out whether the other company is good for it. Businesses have credit ratings just like individuals, and you can make an informed decision on how much risk you’re willing to take.

These checks do cost money, so decide on acceptable risk. For example, automatic credit of £1,000 isn’t unreasonable if you can verify a company exists with Companies House. However, if agreed payment terms involve amounts that could jeopardise your business if late or unpaid, a small fee for a credit check could save thousands later on. All UK businesses can now credit check their customers and suppliers in the UK with the new Credit Check feature in Chaser. This means that one can quickly and confidently verify and ensure that future business partners are financially stable and trustworthy before entering into any business agreement.

​​Also, if you’re not in the UK, big names like Experian provide corporate credit checking services. If you determine a potential client isn’t creditworthy, you can proceed to discuss alternative terms.

4. Encourage rather than punish

Businesses typically don’t have any added incentive to make payments on time. They’re already in receipt of the products and services before they receive the invoice, and there’s little to encourage them to make payment a priority.

That’s not to say that they won’t pay eventually, but if you require prompt payment, you may wish to encourage them to do so with bonuses and benefits. For example, that could involve a discount for paying before a certain date or through a specific payment method.

While it does eat into your bottom line, it is often preferable to add on fees and interest for late payments and eliminates the hidden costs of delays.

5. Set out your credit control policy in advance

Even with the best intentions and doing everything you can to encourage prompt payment, some associates are bound to fall through the cracks. Therefore, any employees involved with chasing late payments must have set procedures to follow to rectify the situation.

If you don’t have a credit control policy in place, it can be difficult to know where to start. This article outlines five steps to an effective credit control policy, and also includes a free credit control policy template you can use for your business. 

It is crucial to begin acting as soon as an invoice becomes overdue. The payment reminder should be firm but fair, and, in the case of no response, it’s typical to send further reminders. Don’t forget to clarify your legal entitlement to charge interest when an invoice passes its due date.

To avoid spending hours every week managing your credit control and manually following up with your debtors, most businesses are now using credit control automation software to do the job. Softwares such as Chaser integrates with your accounting system and sends out personalised payment reminders automatically in accordance with your credit control policy to help you save time and get paid faster. 

Additionally, it’s essential to stand by your procedure. If you reach the end of it, it’s time to pass it on to a collections agency to act on your behalf. You can refer to the agency in your communications. However, it’s the act of passing the debt on that might finally prompt a delinquent payer to take action.

It’s essential to stand by your procedure. If you reach the end of it, it’s time to pass it on to a collections agency to act on your behalf.

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6. Take further action when required

If the worst happens and your business is owed money with no sign of payment, you shouldn’t hesitate to act to recover what’s yours and escalate to a debt collection agency.

A debt collection agency will try to get the outstanding balance paid for you and often see great success. Also, most debt collection agencies, such as Chaser Collections, can support you and offer expertise if you wish to go down the legal route. 

Whether it means going to the small claims court or broader legal action for more significant sums, a willingness to do so is integral to your operations. In cases where you feel there may be a favourable outcome without legal intervention, you may also wish to consider mediation.

7. Remember that credit management is an essential business task

No matter what you consider the most critical regular jobs at your business, credit management and control match them in priority. With no money, there’s no business, and everything could grind to a halt.

Just as a business pays its taxes every year and employees every month, and ensures equipment meets health and safety standards, implementing and utilising a credit control policy is mandatory.

In closing

A single unpaid invoice can take you or an employee 20 minutes to deal with each day, and that time can soon add up. So it’s preferable to invest some time in advance to create a process, automate it as much as possible and follow it to the letter if the worst happens. Twenty minutes a day can soon become just a few minutes each week to ensure everything is in order.

 

Topics:
Credit Control
Credit Management
credit checking