Small businesses are owed on average £6,142 mostly by firms not paying for goods and services on time, according to the Federation of Small Businesses (FSB). We explore ways to make sure your business gets paid faster.
The research shows 37% have run into cash flow difficulties, 30% have been forced to use an overdraft and 20% cite a slowdown in profit growth. If all payments were made on time 50,000 more businesses could be kept open and the economy would receive a £2.5 billion boost.
Cash flow is one of the biggest issues for businesses. Being paid often 30 to 60 days or even longer after you have actually done the work can make it very difficult for business owners.
We have been working with our clients helping them improve the time it takes them to get paid for the work they have done. Below are a number of simple steps that often get over looked but can make a real difference.
Communicate your payment terms
Clearly set out at the outset your payment terms. If you don’t tell your customers when they should pay then how do you expect them to pay on time. Often this is included in an organisation’s terms of business but it is also helpful if it is displayed on the actual invoice itself and on statements.
You may wish to consider rewarding customers if they settle your invoice by a certain date. This is known as an early settlement discount. Typically a small discount such as 1 or 2% will be deducted from the amount payable. In conjunction with this you could also charge interest for late payment of your invoices.
Invoice on time
You should ensure that you raise your invoices and deliver these to your customer as soon as you have completed your work. Delaying sending out invoices by a single day could result in them falling into the following week or month’s payment run. Setting up an automated or online invoicing process will ensure all invoices go out on time.
Get the details right
Ensure that the details on the company invoices are correct. If you invoice a new customer for the first time speak to their accounts department and ensure that you have all the correct contact details and also find out to whom the invoice should be sent. Failure to get the invoice details correct could lead to the invoice being rejected by your customer.
Send out regular reminders
Many accounting systems will now allow automatic reminders to be emailed to clients informing them that an invoice is falling due shortly. This will act as a reminder that an invoice payment needs to be made to you.
In addition, monthly statements should be sent to customers showing the balance outstanding and how many days overdue any invoices are. The customer actually seeing in black and white how many days overdue invoices are may well shame them into paying.
Offer alternative payment types
You should make it easy for customers to settle your invoices. Offer as many payment options as possible. If you do not have a credit card machine then there are now alternatives such as PayPal and Stripe which will allow your customers to make card payments to you.
Invoices generated from most accounting packages will allow you to include a “clicking here to make a payment” button on the invoice. This again makes it easier for customers to settle invoices.
How we can help
We aren’t just your average accountants. We offer a wide range of business advisory services to help you make the right decisions for your business to grow and improve. With over 40 years experience our team is dedicated to really understanding your business. We believe by staying up to date with not only current but changing legislation and industry news we are better placed to help our clients and their businesses succeed.
If you would like to know how Loucas can assist you please do not hesitate to contact us.
Below is a summary of the 5 ways to make sure your business gets paid faster.
The information contained in this publication has been prepared for general guidance and is not intended as advice. Whilst every care is taken to ensure the accuracy of the information, no responsibility can be accepted by Loucas for any loss resulting from acting or refraining from acting as a result of any material in this publication. The information in this publication is not designed as a substitute for seeking professional advice.