When your company is facing yet another cash flow crisis caused by late-paying customers, it can be hard to believe there might be a solution. But there are steps you can take to overcome the problems delinquent payments cause and to avoid them happening again.
Late payments are something that hundreds of thousands of SMEs experience. They can threaten SMEs ability to trade, and stifle appetite for growth and recruitment. In worst cases, it can lead to insolvency.
The amount of time SMEs are kept waiting beyond their previously agreed payment terms can be a big issue. Almost a third of companies face delays of at least a month beyond their terms. Additionally, nearly 20% are having to wait more than 60 days before being paid.
Fortunately, there are measures you can take to protect your company from the worst effects of late payments. Furthermore, ensure that you are paid promptly in the future.
Some of these measures include:
- Research prospective clients – Before accepting a new client, carry out a credit check and find out if the company has a reputation for paying on time.
- Agree on prompt payment terms – Create contracts and terms & conditions that specify when they must pay your invoice and any overdue fees. Include your payment terms on every invoice.
- Send invoices promptly – Don’t delay in sending out invoices. Check that the details are correct to avoid delays.
- Offer a range of payment options – Make it easy for customers to pay you. Offer them a variety of payment options such as Direct Debit, PayPal, and credit card. If your clients are based in a different country, accept payment in their currency.
- Use invoice finance – Invoice finance will give you essential working capital (up to 90% of the approved total invoice) while you wait for the outstanding invoice to be paid. You’ll receive the remaining 10% when your client pays your invoice.
- Use an invoice tracker system – You’ll receive an alert when invoices are overdue.
- Keep to a schedule – Invoice on the same date every month so that your clients know when to expect your invoices.
- Set up internal invoice reviews – Hold regular weekly or monthly internal finance meetings to review your invoices.
- Don’t back down – If you have late fees for overdue invoices then make sure you follow through and charge them. By law, you can claim interest and debt recovery costs if another business is late paying for goods or services.
- Hire a part-time CFO – For a fraction of the cost of a full-time CFO, the CFO Centre provides highly experienced senior CFOs. Your part-time CFO will assess your company’s cash flow position and take the following steps:
- Identify and address all the immediate threats to your business
- Determine where improvements and savings can be made.
- Instigate the use of regular cash flow forecasts. This way you’ll know in advance of a cash shortfall, and can therefore, make arrangements for extra borrowing, or take other action.
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