Mark Coward MD of Ewell Credit Control Solutions, a credit control outsourcing company helping SMEs improve cash flow in the ledger, tell Talk Business how SMEs can deal with unpaid invoices.
At a time when most SMEs are trying to improve cash flow for their future expansion, the burden of unpaid invoices can be fatal to most SMEs. Admitting a bad debt of £50,000 would be enough to send them into bankruptcy, as they do not have the cash reserves to help them in a time of crisis.
Most SMEs spend an average of three to four days a month on credit control, this often falls to someone in the company who also has another role, little experience, knowledge and training of credit control. For this reason they often settle for what they are being told about the unpaid debt by the customer leaving the debt outstanding.
The most important part of credit management is consistency and it is important to keep in regular contact with customer to ensure that invoices have been received. If posted they should be contacted within five days to ensure they have received this, to confirm there are no issues and that this is being sent to the correct person to be approved for payment, then contact should be made between three or four days after to obtain a payment date. If the invoice is emailed the same basic rules apply only make contact within three days of the invoice being sent.
Making regular contact will help you build a profile of your customer’s payment patterns and will also help you to build a relationship with them. Another reason for regular contact is so you can ascertain what kind of financial situation they are in and help you avoid potentially damaging bad debts that could prove fatal to your business survival.
Issuing a late invoice could also prove to be another reason why cash flow is slowing down, you should aim to have an invoice within three days of the goods or services being provided to the customer. The later you issue the invoice the less likely payment will be received in a timely manner.
Also, a lot of SMEs issue invoices with errors that will also cause delay and will add to the burden of unpaid invoices, as you will either have to issue credit note to cancel the original invoice and then another invoice to replace the original, all this takes time which most SME owners do not have. This will also slow the payment process down as most customers will wait for you to make contact before letting you know there is a problem, and by then the invoice is normally falling due or already overdue.
Non payment of invoices has a greater knock on effect as this will cause you to have to delay payments to suppliers which can cause your trade account to be put hold until you have settled bills that are outstanding.
Once a customer has fallen in to arrears you can have their account suspended and start the collection process of the outstanding monies.