There’s no doubt that maintaining a continuous cash flow when running an SME is incredibly hard. Between recruitment and staff retention, financial outgoings and ensuring the bills are paid on time, chasing unpaid invoices can often seem like a job that can wait for tomorrow.

Whilst many suppliers and clients will pay without a quibble, some are more difficult to enforce, and it is these conversations that are frequently fraught with confrontation. Often it can be difficult to have ‘that discussion’ with a client whilst attempting to maintain a good relationship and retain them.

Building solid relationships are invaluable in business, especially when you’re just starting out, and the prospect of bringing legal action against a long-standing or important client can often be rather daunting. I would argue that this is a major misconception, as 85% of our solicitor’s demand letters result in payment in full and in the vast majority of cases without any adverse impact on the business relation in question.

Having a firm but fair approach to payment collection is key to ensuring invoices are paid on time and in full. With that in mind, here are our top tips to keep business cash flow consistent:

  1. Be proactive about collecting payments from clients. Have solid, late-payment penalties and collections policies in place, and stick to them. If your client doesn’t hear from you as soon as the payment is overdue, you can be sure that you won’t be the first to get paid; he who shouts the loudest, gets paid first!
  2. Make it easy for your clients to pay. The easier you make it, the more likely they will pay you. Consider having card payment facilities, BACS, direct debit, online payments or even PayPal.
  3. Know your client! Consider undertaking a credit check on new or even existing customers if you are having difficulty in obtaining payment. It may be that your customer is unable to make payment due to their own financial problems.
  4. Consider applying an incentive for early payment. Money is better in your pocket than theirs and whilst you may feel uncomfortable lowering your prices for early payment, sometimes it can cost more to recover debt than any discount applied.
  5. Have clear procedures. You need effective systems in place, with standard letters going out on the day after an invoice is due, seven days after etc. It’s not an ad hoc ‘admin chore’; you need to be strict with yourself and your customers.
  6. Keep a ‘cash cushion’. Ideally, this should be three months’ operating expenses to protect you from unexpected cash flow issues. Bad payers are a business reality and if your company is working from an account balance of nil, one slow sales month could mean instant disaster.

We understand the need to preserve relationships so that commercial agreements can continue and our team of experts are able to have these difficult conversations on your behalf, starting with our solicitor’s demand letter for as little as £5 + VAT. Even if the problem is not resolved at that point, there is no obligation to commence proceedings and we will then advise our clients on the appropriate action to take.

Catherine Rickett, Debt Recovery Manager, Roythornes Solicitors