Tue, Nov

Winning the Late Payments Game

Too many big businesses don’t play fair. Adopting the right tactics, however, can ensure you aren’t left waiting for the cash you’re rightfully owed.

The UK is currently gripped by a late payments crisis with £14bn being withheld from small firms by businesses that don’t pay on time. Mike Cherry, forum of small business national chairman, provides some insights on how to reduce the impact of late payments.

1. Speak Up

We can’t hope to change our endemic poor payment culture unless we’re prepared to call out bad practice. Appointed towards the end of last year, the Small Business Commissioner has been tasked with bringing our late payment crisis to an end. As part of his efforts, he’s established a dispute handling service which provides assistance to small firms that are not being paid on time. 

If your company is affected by late payments, don’t hesitate to reach out to the Commissioner. The late payment crisis will not climb up the national agenda unless small businesses are vocal on the issue. And if you want to speak anonymously to someone who understands, do contact FSB too.

2. Do The Research

Before signing on the dotted line, properly research potential clients to see if they have a track record of poor payment. The Government now requires the biggest businesses to report on their payment practices. These reports are available to search online. 1,000 large companies have so far started to report on how they pay, and thousands more will follow suit over the coming months.

3. Sign Up To Creditsafe

Creditsafe collects information on how quickly companies pay their invoices. Creditsafe’s customers share information and insights about payment times, highlighting poor payers and promoting best practice. There are more than one million companies on the database, providing a unique window into corporate financial behaviour. Armed with the data that Creditsafe can provide, SMEs can take better-informed decisions on whether to accept work or commissions from certain companies

Remember too that reference agencies like Experian conduct credit ratings for a small fee.

4. Be Clear

Ambiguity around payment terms has to be avoided at all costs. If you expect to be paid within 30 days, make that crystal clear when drawing up agreements. Equally, leave your buyer in no doubt that practices like retrospective discounting, where big firms decide to pay less than agreed simply because they’ve paid on time, won’t be tolerated. 

It’s also a good idea to send payment instructions and deadlines alongside invoices when they’re issued. Ultimately, you’re looking to pre-empt any excuses your clients might try and muster for paying late. 

5. Be Bendy

Minimise the risk of delayed payments by providing flexibility around credit terms. For example, set up a facility for payment by credit card and think about offering discounts, such as 1% for early payments. Remember to balance the extent of any discount with the benefits of having an improved cashflow.

6. Invoice Discount?

Invoice finance solutions can be ideal for small businesses in need of an immediate cashflow injection. ‘Invoice discounting’ is essentially a cash advance against the value of your invoices. So when you raise an invoice you’ll receive 85% of its value from a financier within 24 hours. You’ll retain full control over credit management. The financier simply gives you cash up front and you pay them back, plus a small admin fee, when you receive payment.

7. Be Proactive

Setting up automated emails to clients to remind them when payments are due can nudge them into settling invoices more promptly.

Be proactive and chase your suppliers for payment. Make it clear that you’d prefer to be paid electronically by digital transfer or Direct Debit, rather than by cheque. Also, if you’re waiting on a particularly large payment, don’t be afraid to make a courtesy call or write an email to the supplier to check they’ve received your invoice and that there are no queries about it.

8. Know What's What

It’s important to be aware of legislation in the space, such as the payment terms set out in the Public Contract Regulations. Cost effective legal support is also out there to help tackle repeat offenders. In a lot of cases, a letter from a solicitor is enough to make late payers change their ways.

9. Make Late Payers Pay

You have the right to charge interest on invoices the moment they become overdue. Use it. Our research shows that 8 in 10 small firms don’t charge interest on late payments. That needs to change. 

It can be a daunting prospect to take this kind of action against important clients. However, you need to remember that, if payment terms have been made clear, you’re only taking the kind of fair, commercially savvy action that would be returned if the boot were on the other foot. If clients expect work to be done on time, payment should be made on time. 

10. Get Help

A safe and secure debt management service can be a good avenue to take if you are really struggling to recover debts owed due to late payments. These services can take on the stress for you so that you can stay focused on running and growing your business. 

FSB has a debt recovery product available to members which uses the most simple and effective way possible to recover the money you are owed. Users of the tool simply need to register online, load the debtor information and amount owed. A solicitor’s letter will then be sent on their behalf, giving a seven day deadline for receipt of payment. 

In the vast majority of cases like these, a solicitor’s letter is all it takes to receive payment. In the unusual event that this doesn’t happen there are further steps that can be taken on your behalf.

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