Late payments are a serious issue in the UK, and particularly for small-to-medium sized enterprises (SMEs), which often tread a fine line over cash flow.

So what can small businesses do to fight back against late payments? Michael Chambers, managing director of Bacs, the not-for-profit industry body behind Bacs Direct Credit and Direct Credit, highlights five top tips to help your business become more efficient, save money and combat late payments.

Be proactive

Don’t just sit there and assume that you will be paid on time, a polite phone call in advance of the due date can often pre-empt payments. A further subtle option is to send a letter to suppliers encouraging them to pay you electronically. Being proactive, and polite, will help build relationships with your customers’ accounts department.

Do your home work

Limit risk by performing a credit check on all new customers. There are many associations and independent bodies, for example Companies House, which can provide status reports for a reasonable fee. This upfront insight is invaluable; if you knew a company had experienced financial problems in the past, would you give them 30 days credit?

Demand interest

Did you know you are legally entitled to claim interest on late payments? The onus is on you to resolve any payment disputes you find yourself in, so make sure you are familiar with UK business law and late payment legislation. Don’t miss out because you don’t know.

You win, we all win

Prompt payment keeps your cash flow positive, so why not reward those who pay on time with discounts. This will encourage them to pay on time, every time, and keep the money flowing in. If all businesses used the tools at hand to settle accounts quickly and efficiently, the economy as a whole would feel the benefit, creating a positive ripple effect.

Pay me direct

Get paid electronically. Quote ‘pay me direct’ on every invoice and include your account number and sort code, this will encourage companies to pay you by Bacs Direct Credit.

When funds are paid into your account electronically, the money is cleared and available for use on the day it is received – earning interest instantly as you don’t have to wait for a cheque to clear. This simple step can save time spent on payment reconciliation and queuing at the bank to pay in cheques.
 
Practice what you preach!

If you get a reputation as a late payer, word will spread and your cash flow may suffer as a result. Make sure you practice what you preach by paying your suppliers in a timely fashion. Regular business bills can be quickly and efficiently settled via Direct Debit. This approach will encourage positive relations and could also help you negotiate better payment terms and avoid penalty charges on any overdue invoices of bills.

Eliminate potential excuses

How many times have you heard, ‘the cheque is in the post’? Automated payment methods are more reliable and secure than other more traditional methods. They reduce the risk of payments going astray and help ensure payments are received directly into your bank account on time.

And finally, did you know?

An average of 17 working days is lost each year chasing-in late payments, with almost a fifth of all SMEs now employing a dedicated member of staff for this purpose. Don’t get caught in the late payments trap, be upfront with customers, set out your payment terms and ask to be paid direct.

www.paymedirect.co.uk

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By Bacs Payment Schemes  on   Jul 10,2008

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Keywords

late payment    cash-flow    money    customers    clients   

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