For many UK businesses, late payments can present serious cash flow issues. When clients or customers delay their payments, it can impact the ability of a business to pay its own bills, invest in growth, or even meet payroll. Here’s a guide on how to minimise the risk of late payments and protect your business.
1. Robust Credit Control Procedures
Having a clear credit control procedure is crucial. This process helps you manage outstanding payments, ensuring you have a system in place to chase late payers regularly.
Credit Checks: Before offering credit terms to new clients, always conduct a credit check. This will give you a clear picture of their payment history and financial stability.
Clear Payment Terms: Clearly define your payment terms on every invoice. This might include due dates, acceptable payment methods, and details of any late fees.
2. Clear Invoicing
A common reason for late payments is confusing or incomplete invoices. Ensure that every invoice you send is clear, detailed, and accurate.
Itemised Breakdown: Provide a detailed breakdown of the products or services delivered.
Contact Details: Always include your business’s contact details and those of the person or department responsible for payments.
Prompt Invoicing: Don’t delay sending out invoices. The sooner you send them, the sooner you’ll get paid.
3. Late Payment Charges
Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses can claim interest and debt recovery costs if another business is late paying for goods or services.
State Your Intentions: Make sure your clients are aware that you will enforce this legislation if necessary.
Charge Interest: If a client is late, charge interest on the owed amount. This not only compensates you for the inconvenience but also acts as a deterrent for future late payments.
4. Payment Reminders
Sending out reminders can often nudge a client who might have forgotten or overlooked an invoice.
Automated Reminders: Use accountancy software that automatically sends out reminders as the payment date approaches and once it has passed.
Personalised Follow-Up: If automated reminders don’t work, a personal phone call can make a difference. A direct conversation often yields faster results.
5. Flexible Payment Options
Offering multiple payment options makes it easier for clients to settle their bills. Consider bank transfers, direct debits, online payment platforms, or even traditional cheque payments.
6. Maintain Open Communication
Build strong relationships with your clients. Open channels of communication can help you understand any potential reasons for delayed payments. Sometimes, a little flexibility can ensure you maintain a positive relationship while still getting paid.
7. Consider Invoice Financing
For businesses facing consistent issues with late payments, invoice financing can be an option. This involves selling your unpaid invoices to a third-party company for a percentage of their value, ensuring you get most of your money without waiting for the client to pay.
Late payment issues are an unfortunate reality for many businesses, but by implementing robust procedures, maintaining clear communication, and exploring alternative financial solutions, you can protect your business from the negative impacts of delayed payments. Always seek professional advice tailored to your business's specific circumstances to ensure you're making the best choices for your financial health.