Three in five (58%) SMEs are currently waiting on money which is tied up in unpaid invoices, according to research, and for medium sized enterprises with 50 to 249 staff, those waiting on late payments rises to more than nine in ten (94 per cent).
Late payments negatively impact a business’s income, which can result in issues arising with their cash flow. For some businesses, this owed money might prevent new hiring opportunities or further investment back into the business. In worst case scenarios, the business might be forced to close.
This ongoing issue has only been further exacerbated by the cost of living crises, with over a quarter (26 per cent) of businesses reporting that late payments from customers have become more frequent.
So, what can you do as an SME when you’re not getting paid on time? We’ve put together 5 top tips on how to get paid on time that you can implement into your payment processes.
How To Get Paid On Time
Agree Payment Terms in Writing
This should be top of your list when you’re not getting paid on time. It sounds like an obvious one, but so many businesses don’t set out the payment terms in writing before they proceed with goods or services.
Make your expectations transparent from the start, including your costs and the terms of business, including when you expect payment to be received and whether that has an effect on order fulfilment or not. Ensure that the other parties agree before you proceed.
Hopefully it doesn’t come to it, but always keep those agreements as proof should you need them further down the line if further action is required.
Implement a Reminder Schedule
This is a good opportunity to use automation that is included in your finance or ERP software. Save precious headspace and your employees time by setting up not only reminders for when outstanding invoices are due, but also send out recurring invoices and follow-ups on outstanding invoices, which saves you a lot of time each month and reduces admin tasks for your staff.
Systems such as Microsoft Dynamics 365 Business Central have automation capabilities that go far beyond most conventional systems, allowing you to focus on value-adding tasks whilst your intelligent system effortlessly manages receivables includes checking whether amounts due are paid on time. If customers have overdue payments, you can begin by sending the Customer Statement report as a reminder. Alternatively, you can issue reminders.
You can use reminders to remind customers about overdue amounts. You can also use reminders to calculate finance charges, such as interest or fees and include them on the reminder. Use finance charge memos if you want to debit customers for interest or fees without reminding them of overdue amounts.
Diversify Your Payment Methods
Make it as easy as possible for your clients to pay and offer multiple payment methods where you can. Having the ability to accept many forms of payment will increase the potential to get paid on time. Gone are the days of making payments by cheque-only, take stock of the fact almost everyone has an internet connection these days so can make online payments – whether through BACS, or cloud-based services like PayPal.
If you can, invest in a card payment system if you see your customers face-to-face so they can pay via card or Apple and Google Pay.
Don’t forget about direct debits. They make payment-taking far simpler and give you the opportunity to take the agreed amount out of their bank account when the payment is due. If they are regular payments, it eases the burden of you chasing outstanding amounts too.
Credit Check Your Customers
This one rings particularly true for businesses that deal with large payment amounts. By conducting credit checks, you can get a better idea of the customers financial position, such as previous missed payments and county court judgements against a company, amongst other things. You can take matters into your own hands too and request a copy of their latest filed accounts.
Enforce Payment Terms
Be stringent with your payment terms. Stick with the conditions that you initially set out including amounts agreed and any time parameters that you set. Make sure your invoicing process is clear, including what happens when payment is delayed, whether that’s interest charges under the Late Payment of Commercial Debts (Interest) Act, reporting them to the relevant parties or as a last resort, taking legal action.