There can be nothing more frustrating for business owners than waiting on payments from clients.
Unfortunately, these instances happen frequently, and while some payments will come in only a few days late, other payments can take a lot longer and will require chasing.
Late payments can be damaging, especially for Small and Medium Sized Enterprises (SMEs).
A report by the Federation of Small Businesses (FSB) found that 52 per cent of SMEs experienced late payments in 2022, and 25 per cent reported increased late payments.
Late payments can not only affect cash flow but hinder growth and development. However, chasing payments, while necessary, can put a strain on potentially vital relationships with clients, so it is important that when chasing for payments, businesses should handle things delicately.
Clear payment terms
The first line of defence for business owners against late payments is clearly defined payment terms.
These terms should be concise and easily understandable, outlining precisely when payment is due.
It is also advisable to state these terms at the outset of any business transaction or in the contract, and they should also be prominently displayed on each invoice.
Invoice promptly
The sooner invoices are sent, the sooner they will be paid. It should be a priority for SMEs to send out invoices as soon as the product or service is delivered.
Accounting software can assist with automatic invoice generation and sending, helping to ensure that there is no delay.
Payment reminders
Regular reminders can be an effective way to chase overdue payments. These can be sent a few days before the due date, on the due date, and if necessary, a few days after the due date.
These reminders should always be polite and professional, ensuring that business relationships stay healthy.
Online payment methods
There are several tools that businesses have at their disposal that can help in streamlining payment procedures.
Online payment methods can provide a way for customers to pay their invoices promptly.
Late payment charges
The Government’s late payment legislation allows businesses to charge interest and debt recovery costs on late commercial payments. The Late Payment of Commercial Debts (Interest) Act 1998 can be an effective deterrent against late payments, though it should be used delicately to avoid straining customer relationships.
Invoice factoring
If a business frequently struggles with late payments, invoice factoring should be taken into consideration.
This is a financial service where outstanding invoices are sold to a factoring company for a fee. They then take on the risk of collecting the payment, providing businesses with immediate cash flow.
Escalation
If all other attempts to claim payments fail, then the final step would be to escalate the issue. This can be done through a solicitor’s letter, a debt collection agency, or as a last resort, legal action through the courts.
The aim should always be to recover the debt while preserving the business relationship.
If your business is chasing payments and you would like assistance in recovering them, please contact us today.