There are lots of ways to encourage your customers to pay on time, thus making sure your cash flow remains healthy and your business stays on track. However, late payment is a widespread problem amongst SMEs so you might still find customers holding off on their payments – so how can you deal with this in the best way possible? There are lots of measures you can take, or you could employ factoring or invoice discounting as a way to unlock the funds within 24hours.
Of course, if a customer is late in paying, your first step should be to contact the customer in question and try to resolve the issue. You should also review your payment and billing procedures to make sure you’re giving yourself the best chance possible of collecting payments on time – this will also make sure you minimise the chance that late payment will become a widespread problem for many of your customers.
You can of course agree any credit period you wish with your customers but this should be finalised before the transaction takes place. Don’t just assume that your normal terms apply – your payment period should be part of your negotiation on price and should be agreed by both parties. Though this agreement can be verbal, it’s far preferable that it’s in writing.
If your customers are paying late then you do have the rights under late payment legislation to add interest and debt recovery costs to their total. You can exercise these rights at your discretion, though of course your choice will depend on who your debtor is, the size of the debt and how late the payment in. Maintaining a good relationship with customers, especially if you’re looking for repeat business, is of course important – so this decision is a balancing act between collecting payment and maintaining customer relationships.
If your payment terms are on a 30, 60 or 90 day basis then invoice finance could help with your late payments. You can unlock up to 90% of the value of an invoice within 24 hours, with the remaining 10% released after the debt has been paid. If you’re struggling with late payment and poor cash flow, then looking into factoring and invoice discounting could give your business a lifeline.