We’re stating the obvious here, but your business relies on a positive and reliable cash flow coming through each and every month in order to succeed. However, late payments are increasingly becoming a problem for business in the UK (particularly SMEs) and many company directors believe that ‘chasing’ payment is part of their job role.
A recent study conducted by Experian found that one in five firms are currently owed more than £25,000, and one in ten firms are owed more than £100,000. Perhaps this damaging ‘they won’t mind if we pay a little late this month’ attitude that clients across the UK have increasingly adopted could actually be the reason many small businesses have to close their doors.
We understand how frustrating it can be trying to chase what you’re owed and fearing that you’re not going to be able to meet your own payment deadlines if your clients fail to step up. But don’t worry, we can help. There are a number of ways you can recover late payments and protect your business from them in the future, ensuring that your cash flow stays strong.
Run credit checks before working with clients
If a prospective client is a trustworthy one, then they will completely understand why it is necessary for you to carry out these checks before proceeding to work with them. The credit check will allow you to determine the likelihood that this prospective client will be able to pay you in full and on time. A credit check looks over the company in question and its previous credit history, where you can see if they’ve typically made late payments in the past and make an informed decision on whether you think they’ll pay you appropriately.
Set clear payment terms and include late payment charges
From the very outset, make it clear what your payment terms are, including how much the client will be required to pay, how often and the date you require payment. You should also introduce late payment charges if you haven’t done so already. Make the late payment clause as clear as possible, stating when the late payment fees will be issued and how much the charge will be. These terms should be as specific as possible and your prospective client should understand them in full and agree to them, by signing the terms, before any work commences or any products are placed on order.
If you are concerned that a new corporate client will not pay you for the work you have carried out, consider including a personal guarantee alongside your terms and conditions. If the company directors find themselves personally liable for the debt due to your company, you may find payment deadlines are less likely to be missed. Personal guarantees can also protect you if a client becomes insolvent, as you will have an alternative party to pursue for the debt.
Make it easy for clients to make payments
Often, a client won’t miss a payment simply just because they don’t feel like paying. They miss payments because they either cannot afford to keep up with them or they don’t have the processes in place to keep up with payments. If a client feels as though the process of paying you is difficult, then this could cause them to put off payment until they know they will have the time to dedicate to it. Make sure that making a payment to your business is as simple as possible, perhaps using an online system and/or by offering a flexible payment period that works for both you and them.
Build strong relationships with clients
Building a strong relationship with your clients is really important on a lot of levels, not just for financial purposes. A strong working relationship will help you to understand each other’s preferred way of doing business, allowing you to provide a better service to your client. If a client feels they are valued, understood and receiving a higher standard of service than they would receive from any of your competitors or their other suppliers, then it is likely that this loyalty will cause them to prioritise their payments to you.
Get external support (from Business Rescue Expert)
If you’re really struggling with chasing late payments and feel like you’re getting nowhere, then don’t let it go on too long. You need to take action before it’s too late and starts to really affect your business, or worse, causes your business to go under. If you feel overwhelmed at the task of repairing this damage yourself, then there is help out there. Come and talk to us today, we can advise you on recovering late payments and help prevent your business from failing.