5 tips for getting paid on time » SMEInsider

5 tips for getting paid on time

janeJane Hewitt is head of marketing at CreditHQ, a tool that helps manage cash flow for small businesses, including gauging financial stability of your suppliers and customers, and helping you decide which sorts of businesses youd like to deal with.

In this guest post she shares five measures small businesses can take to keep on top of their cashflow and ensure they get paid on time.

The issue of late payments in the UK was highlighted in The Queen’s Speech last month when it was announced that a new small business conciliation service will be introduced and a small business commissioner appointed to help firms tackle the issue of late payments for goods and services, which amount to billions of pounds.

The role of the small business commissioner will be to:

  • Be a first point of contact for small businesses, providing advice and support on how to avoid disputes and how to resolve them
  • Offer access to mediation services that quickly resolve issues, “at a fraction of the cost of going to court”
  • Investigate complaints over unfair business practices and regularly document its findings

It is believed that small businesses are owed about £26 million in late payments with 30 per cent of SMEs spending more than £500 per month servicing debt related to late payment costs.

So how can you ensure you get paid on time? Here are a few tips to ensure you’re on top of your business cashflow.

1. Agree to your terms of sale before you do the work

It might seem obvious, and it’s easy to not do it in the excitement of getting a new customer, but it really isn’t a closed deal unless everyone knows who has to pay what, and when it needs to be paid by. You don’t want to get the work done, only to find out that your customer always pays on 60-day terms! If you’d have known that before you spent all those hours working away, you may have decided not to work with them, or you might have arranged to have longer terms on payments you might need to make in order to deliver the work.

2. Invoice promptly and accurately

It’s often convenient to say: “I’ll do all the invoicing at the end of the month, all in one go, because it will be quicker for me to crack through it when I’m in the invoicing zone.” In reality, what this means is that the customer who gets your service or buys your product on the 1st of the month effectively gets a whole month of free credit, as you won’t raise their invoice for a further 30 days. After that? They have 30 days to pay it. It might be great for them, but it’s not so great for you.

Invoice as soon as you’ve done the work, or sold the goods. The sooner your customer gets the invoice, the sooner they have to pay it. And it sounds obvious, but make sure your invoices are accurate, so that the customer doesn’t have an excuse to delay their payment while you correct your mistake.

3. Offer pay now options so you can get your cash even sooner

Why wait 30 days for your money when you can get your customers to pay by credit card on the spot? Yes, you might have to pay a fee to the card company, but is this really much more than any interest you might have to pay because you’re using an overdraft, or financing the business on a loan because you don’t have the cash you need on hand?

The other option might be invoice factoring, where a third party agrees to buy your unpaid invoices for a fee, and then gives you a percentage of the invoice value up front. These options might not be viable for everyone, but they can help get the cash in the door more quickly.

4. Chase up invoices that havent been paid

There’s no point raising all your invoices promptly if you aren’t going to chase them promptly. Before the invoice is due, get in touch with your customer to remind them that payment is upcoming, and check everything is OK for it to be paid on time. This way, if there are any issues, you can deal with them before the invoice is due.

Get in touch with your customer again once the invoice is due, and get confirmation of when it will be paid. Then make sure you keep communicating if payment isn’t forthcoming. While it might be unpleasant, this gets the customer into the mindset that they need to pay you to get you off their back. If they think you’re not on top of things, then they might not consider paying you to be a high priority.

5. Think ahead: plan for the known, and the unknown

There are always bills that come in throughout the year which don’t relate to your sales cycle or to a regular monthly payment, such as tax bills, or office refurbishments. So make sure you are saving up cash to cover these costs when they’re due, so that they don’t sneak up on you, and steal all the cash you were going to use for paying salaries or purchasing new stock. Keeping a cashflow forecast up to date will also help with this planning.

Ormsby Street is a Software-as-a-Service business based in Old Street, London. Formed in 2014, Ormsby Street is developing the next generation of financial data services for small businesses CreditHQ. Its team of high-performing product innovators and software engineers are quietly taking sophisticated financial information and turning it into a next-generation digital tool to help businesses make good decisions about customers, suppliers and themselves.

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  • Great simple advice, I wish more people took it up!