If you are in business, you know that cash is king. No cash = no business. This highlights how important it is to get paid for the work you’ve done or goods you’ve supplied. The following are a few ideas on how to make the process as painless as possible.
Set out your expectations
This involves setting the terms and conditions, notably when you expect to be paid. It should be relevant for the industry you operate in – some industry norms may be 30 or 60 days – and may build in some expectation of lateness. For example, if you expect to be paid after 28 days, setting a limit of 14 days may achieve a ‘win-win’ for both sides. You also need to communicate your policy, and highlight when you expect to be paid on invoices.
Make the payment process easy
After making sure that your invoices are correct and not subject to query (which can buy time for your customer), make it as easy as possible for your customer to pay you. Include envelopes to return cheques if appropriate, or include your bank details for BACS payments. Consider setting up standing order or direct debit facilities, or taking credit cards. In essence, put yourself in your customer’s shoes and ask “what would make it easier to pay this supplier”?
Credit check customers
This obviously depends upon the amounts involved and the risk you are willing to take, but it may be worthwhile either obtaining references for new customers or even doing credit checks. You can find information about limited companies at Companies House.
Encourage prompt payment
Provide an incentive for customers to pay you early by giving a percentage discount for early settlement (or even advance payment). This is the carrot approach; the stick approach may be applying a credit charge or late payment penalty that doesn’t have to be paid if prompt payment is made. These can be built into your pricing structure.
Have a clear credit control procedure
It is important that overdue debts are not allowed to drift, as this simply sets the standard for future transactions. The process could follow the example below:
Of course, if legal action is threatened, it is important that it is followed through, otherwise it will simply be a hollow threat that will be ignored next time. Legal action may involve a solicitor or a debt collection company. In many instances, the threat may be the wake up call required.
Credit control should be done regularly
You shouldn’t resort to credit control when funds are running low in the bank – by then, it may be too late! A policy of little and often is more effective. Practices like email reminders just before a debt is due and regularly sending out statements – some companies only pay statements – show that you are serious and on top of things. It also avoids debts piling up, customers being put on stop, cash flow problems, and time being taken from more productive areas of business.