…and what you can do about it
Late payment remains a giant source of frustration for many businesses, with new figures from Bacs Payment Schemes suggesting £14.2 billion is currently owed to SMEs in outstanding invoices. While many are focused on the impact this has on cash flow and identifying ways to recover these unpaid sums, have you taken a moment to consider why your invoices are getting ignored in the first place?
In most cases, the cause of late payment can be attributed to poor and outdated credit control processes that can easily be avoided with a few tweaks. But it’s important to understand the reasons invoices are being ignored before you can come up with a solution for your business.
Can’t pay – won’t pay
Some customers ignore invoices because they simply can’t afford to pay. With widespread late payment and rising business costs causing cash flow shortages it’s not surprising that some customers are struggling to meet their financial commitments.
However, you can limit the chances of this happening to you by performing credit checks of all your customers to assess the risk they pose to your business before offering credit terms. It’s not enough to just credit check new customers, even your existing customers need to be risk assessed from time to time as any change in circumstances could affect their ability to pay you.
It’s also worth remembering that when a business is having cash flow troubles they will begin to prioritise their payments. To prevent your invoice from sitting at the bottom of their list you should keep in regular contact with the customer to build a solid relationship and keep your invoice front of mind.
If your conversations with the customer reveal that they are struggling financially, it could be beneficial to set up a payment plan. Whilst this will mean you get paid over a longer period of time it’s often better than not being paid at all.
Supply chain bullying
Others might ignore your invoices because they think they can get away with it.
This is often particularly true when dealing with larger businesses who are used to imposing their own terms on businesses. This supply chain bullying is not acceptable but is unfortunately all too common – although it is hoped that new reporting regulations introduced earlier this year will improve things.
To protect your business from these poor practices you can ensure that you and your client are on the same page from the beginning with effective terms and conditions.
By clearly expressing what is expected from both parties from the outset, you are setting expectations that could help to limit disputes and avoid any potential surprises in the future.
It is important that these terms and conditions show that you do not tolerate late payment by explaining what your processes are once an invoice goes overdue. This can include charging late payment interest, outsourcing to a debt collection agency or taking legal action.
What’s perhaps even more important is that you stick to these processes. If you let a customer get away with paying beyond terms once, the chances are they will do it time and time again.
Or are your invoices not getting paid because your invoicing process isn’t as effective as it should be?
This is one of the most overlooked processes but far too often we see businesses making the same simple mistakes on their invoices which leads to them being ignored or disputed.
Whether it’s sending the invoice to the wrong department, adding on an extra zero to the payment amount or getting the customer’s address wrong, any mistake could be costly for your business.
To maximise your chances of being paid on time you should ensure you follow these steps for every invoice that leaves your business:
1. Address the invoice to the most relevant person and check you have the right address
2. Quote reference numbers and provide a clear description of the product or service provided
3. Provide a specific payment date and clearly state payment terms
4. Give details of all acceptable payment methods
5. Provide contact details
6. Refer to your late payment procedure
7. Proofread for grammar, spelling and mathematical mistakes
8. Send it promptly to avoid delays and save a copy for your records
9. Check it has been received with a quick courtesy call
10. Chase it up when the invoice exceeds terms
By following this 10-step invoicing process you are putting your business in the best possible position to tackle late payment, or even-better avoid it all together.
Alex Hilton-Baird, Managing Director of Hilton-Baird Collection Services