Frustrating, annoying, inconsiderate. It’s hard enough to run a business without the added pressure of clients who always pay late, or even worse, don’t pay at all. Not only can it take up an inordinate amount of your time chasing them for payment, but it can also have a devastating impact on your cashflow. And that’s before we even talk about it souring your relationship with that client to the extent you start to question whether you ever want to do business with them again.
But there are some steps you can take to help reduce the risk of late payments. We take a look at what they are.
1. Be clear from the start about your payment terms
Whenever you take on a new client it’s worth outlining your payment terms to make sure they understand them and are happy to commit to them. This should include when you will be invoicing them and how many days they will have to pay. You might also want to include something about late payments, especially if you plan to charge interest.
If a new client balks at your terms or wants to change them drastically, consider walking away unless they have a very good reason why the terms don’t work for them. We would also recommend you get the client to agree to them in writing or by email.
And if you increase your prices at the start of the new financial year, it doesn’t do any harm to resend your payment terms at the same time, especially if a particular client always pays a few days late.
2. Make it super easy to pay your invoices
While paying online is the easiest option for most of us don’t assume it works for all your clients. There might have been a move in recent years to take everything online (Making Tax Digital, we’re looking at you!), but remember some people might be more comfortable with cheques or even cash. Whilst we wouldn’t recommend taking cash payments as the norm, for some businesses, such as mobile hairdressers, it could be a good way of ensuring you get paid quickly especially if someone isn’t comfortable with banking online.
3. Don’t let unpaid invoices go unchecked
We’ve covered before the steps you should take to chase unpaid invoices, but if someone constantly pays you late, then it’s worth doing a bit of digging to work out what the problem is.
- Is it because they don’t find it easy to pay your invoices i.e., you’ve gone digital and they prefer cash?
- Do your invoices arrive too late for their normal payment run, so they have to make a special effort to pay yours?
- Are they facing cashflow issues so need to wait to be paid themselves before they can pay you?
- Is their admin a bit of a disaster, so your invoices keep getting mislaid?
- Are they being a bit sneaky and keeping the money in their bank for as long as possible and basically using you as a free credit provider?!
Whilst it can be difficult to have these conversations, you might find there is an easy solution to prevent it happening again, such as following up your invoice with a text message to confirm they have received it.
And if it turns out a customer is simply a bit disorganised or doesn’t think it really matters if they pay a few days late, have a frank conversation with them about the impact their tardiness is having on your business. It might help them understand why it’s such a bugbear and encourage them to change their approach.
4. Don’t be embarrassed
Lots of us don’t like talking about money, so it’s completely understandable that you don’t want to raise the issue of late payments with your clients. But sadly, it’s simply part of business, a not very nice bit, but no different from all those other tough challenges you will have faced, such as starting a business from scratch, pitching for investment, or having to let people go.
Above all remember you’re not alone! According to research from Pay UK more than half (54%) of the UK’s small and medium sized businesses are suffering as a result of late payments.
But what about people who simply won’t pay?
Sometimes despite your best efforts, you won’t be paid. After you’ve followed our tips on chasing invoices, we would suggest taking Country Court Action against them. While it might sound extreme, it might be the push they need especially as it could negatively impact their credit rating for the next 6 years.
Late payments are often a bugbear for small businesses, but they don’t have to be. Follow our simple tips and hopefully you’ll be able to nip the issue in the bud before they have too much of a negative impact on your business.
