How to Fight the Late Payment Spike

Have you noticed that your clients are paying later and later each month? No, it’s not just you. Late payments are on the rise across the board, and it’s hitting all businesses hard. Particularly SMEs. In fact, late payments are undermining the stability of UK SMEs so much that many (42% in fact) are struggling to pay their staff on time. Not surprising, given that (according to Sage) SMEs are owed a staggering £42,000 in late payments. It’s something that’s frustratingly out of the control of a lot of businesses, and it often feels like there’s nothing you can do about it. But that’s not strictly true. While you can’t go and take the money out of your clients’ accounts yourself, there are some things you can do to protect yourself and fight the late payment spike.

Call Earlier in the Credit Period

Rather than waiting for the due date to contact your customers, it’s worth contacting them a couple of weeks after you’ve sent the invoice. This provides them with the chance to confirm they’ve received the invoice and mention any issues or disputes that could affect payment. You can also use this as an opportunity to confirm the due date with them.

Make Contact Before the Invoice is Due

On top of the above contact, put a reminder in your diary to get in touch a few days before the invoice is due. This should be a friendly reminder that their invoice due date is coming up, with details of how they can pay and a prompt to contact you if there are any issues. This not only reminds them in case they’ve forgotten or misplaced your invoice, but it can push your invoice to the top of the pile. If they are experiencing cash flow problems (as so many businesses are at the moment), this simple action shows them that you have a good credit control process in place and will take action if things go unpaid. So they’re more likely to pay your invoice ahead of others, rather than run the risk of being chased for payment as soon as it’s overdue.

Automate Your Credit Control Emails

Both of those actions might seem small, but if you have a lot of customers and a lot of invoices, it can take up a lot of time. If you can, it’s worth automating these communications so that your team can focus on other things. You can either do this through automated emails or by outsourcing to a specialist company that deals with credit control and debt collection (like us). This gives you and your team more time to focus on growing your business while knowing the finances are taken care of.

Call as Soon as the Invoices are Overdue

Most importantly, don’t let overdue invoices go too long. Yes, they might just pay a day or so late, but that’s still bad for your cash flow! Instead, contact your customer as soon as an invoice is overdue. If they’ve genuinely forgotten to pay, then this will prompt them to do it, and if they have any issues, they can be discussed and addressed early to agree a way forward.

The Importance of Knowing Your Customer

Often, the reason for late payments is that the customer is experiencing cash flow issues. As times get harder, this is only increasing, hence the spike in late payments across the board. While all of our tips above are around keeping existing customers on track with payment, we also have a few around making sure you take on clients who are creditworthy, and more likely to be able to pay on time. And that all revolves around knowing your customers. You can do this by:

• Running credit checks on all new customers.
• Ask your customers to complete an account opening form so that you can gather key information about the business.
• Keep in touch with your customers throughout the credit period.
• Act as soon as the invoice is overdue.

If not handled carefully, late payments can have a profound impact on any business. Not only does it impact your own cash flow and ability to pay your suppliers and employees, but it stifles your ability to grow, drains your resources and could even lead to business closure. That’s why it’s so important to manage not only when it happens, but proactively.

At Debtcol, we work with a lot of businesses to manage their ongoing collections, as well as put pre-emptive measures in place to protect their cash flow. We are here to help our clients get paid faster, whilst easing the burden that credit control can have. If you would like to know more, just get in touch with the team at Debtcol today.