While the economic outlook is obviously a big pressure on the country’s SMEs, one thing that many struggle with is late payment. Though this is improving, late payment can still play havoc with cash flow. Not having the money at the end of the month to pay the bills or to fund expansion. So, how can you avoid late payment and help your business manage its cash flow?
According to Experian, UK businesses are taking on average two thirds of a day less to pay their invoices than they were a year ago when comparing Q1 of 2011 with the same period of 2012. However, the average remains that invoices are paid 24.67 days after the agreed terms of the invoice – which, to say the least, isn’t fantastic.
So, how do you avoid late payment?
The first thing to do is to agree definite terms. Don’t just think that putting 30 days on your invoice will be enough. Make sure that you agree on your terms and keep track of all correspondence. If there’s a dispute, even a email can serve as evidence is things go wrong.
If you’re dealing with a large companies, you need to know who to invoice. Having your bill passed between departments will only lengthen payment times. Some might use online portals for invoicing. It’s important to understand this as no doing so will of course make the time it takes for payment drag on even longer.
Experian has also showed that a huge 71% of businesses don’t check the credit scores of the companies they deal with before issuing invoices. Credit scores of a company alert a company that more stringent payment terms might be needed, giving an advanced warning that some extra vigilance might be needed. At the moment, 1,750 businesses are failing each month – this makes it all the more important to know the credit scores of those that you’re dealing with.
Late payment is an ongoing problem, but one that can be minimised with a few extra precautions – if those fail, there’s always invoice factoring, which can release the cash tied up in unpaid invoices within 24hours.