The introduction of alternative finance services such as invoice finance, crowdfunding and peer-to-peer lending have made a huge impression on how businesses can source working capital finance. Late payment can arise from disorganisation on the part of business owners and can be minimised by good management. Below are five tips to help you avoid this type of late payment:
• Know your customer It may be a cliché but it pays to have a good relationship with your client or a representative of that business. That way it will be easier to sort out payment terms and chase any ones outstanding. • Agree payment terms in advance therefore you can control your cash flow management at the source By agreeing terms in advance, strategically you can pre-empt cashflow fluctuations and decide on something that suits your business growth plan. You will be better prepared.
• Invoicing correctly and promptly. Anything that slows the payment process or distracts from it could lead to serious problems. Organisation is paramount. • Chasing payment immediately when it becomes overdue Obviously you need to be paid for the service/product you have provided so make sure that you respond swiftly and efficiently if a payment becomes overdue. Remember; heavy-handed attempts at collection & enforcement (especially by third parties) can often backfire on your relationship with your client.
• Timing is all-important in the management of cashflow and collection of amounts due, while attention is elsewhere, the slow paying debtor could fail These tips are useful in helping the business with organisation and management however some late payments cannot be fixed like that. Late payment also arises as a natural consequence of being a supplier to large corporates. Small business owners cannot risk offending their biggest and most important client by phoning up and being terse on the phone with them.
Government measures – such as the automatic levying of interest on late payments – are also unpopular with SME owners, as most rely on raising your price, which will often make your business uncompetitive. Waiting on long payment terms will often retard a business’ growth, especially in very fast moving industries where waiting for three months for a big client to pay can be a huge drag on their ability to take on new staff, or move up the ladder, dealing with bigger and bigger clients. A huge part of the economy is predicated on the notion that entrepreneurs can accelerate their ambitions by using credit sensibly; SMEs shouldn’t be putting off their growth plans to appease the large customers insisting on these terms. Good credit management is a must but late and long payments will continue to happen.