Martin Campbell, MD of Ormsby Street, the company behind financial health-check tool CreditHQ, gives his five tips to ensure your business gets paid on time.
Late invoice payment is one of the biggest blights on small business in the UK. The average time for small businesses to get paid is 71 days, and the average overdue invoice is worth more than £6,000. So late payment is a major issue, impacting cash-flow, payment of staff, the ability to grow and even the survival of a business.
Here are our five tips to make sure you get paid on time.
1) Conduct a financial health check on everyone you work with
We recently conducted some data analysis which revealed small businesses that credit check their customers are around 30% less likely to go out of business in their first year, than those who don’t credit check.
So small business owners should check the financial health of every single supplier, partner and customer that they work with. This sounds onerous and time-consuming, but it really isn’t. It can be done via Companies House or there are free tools that do it for you, looking at how long firms take to pay invoices, providing the relevant background about what the data means, and helping small businesses make the right decisions about how to proceed.
2) Big isn’t always best
Just because a company is a major household name, that’s no indication of how quickly they’ll pay. If your firm lands a contract with a massive company, make sure you do proper due diligence on them specifically, as some companies insist on long payment terms and then delay even further once the invoice has been sent. Talk to other companies that trade with them or have done so previously to get their perspective. If you find they have suffered late payment, you need to think hard about whether you want to work with such a company.
3) Be clear about payment terms from the off
Be bold in your initial contract discussions about payment terms and make it clear that you cannot and will not tolerate late payment. Talking candidly and openly about payment terms as early in the contracting process is important in getting across the message that you won’t stand for late payment.
4) Get smart with invoice dates
The date that a customer receives an invoice is often the date at which their payment process ‘starts’, which can waste valuable days or even weeks. So you need to get invoices with them as early as is practical. Posting your month end invoices on 25th means that they get to the finance department within the month, and leaves less room for excuses for late payment.
5) Chase, chase and chase again
In an ideal world, people would always pay on time. But that’s not the case and there are occasions when a small business has to chase for payment. This can eat into your valuable time and there is a concern that to chase for payment is somehow rude or inappropriate, and that to do so might upset someone or cause a contract to not be renewed.
That’s highly unlikely. If you are owed money then it is your absolute right to request payment until you get it. Chasing for payment demonstrates that you run your business properly and if your customer relies on dodging their obligations as a matter of course, your company will suffer the more you do business with them.