As your business begins to grow, and the impact of big contracts not being paid on time grows, David Banfield gives his advice on the useful issues to address so your company doesnt end up in a hole.
Late payment is a burning issue for many British SMEs at the moment. Research released from Lloyds Bank suggests that small and medium business, across the country, are owed in excess of 500bn in outstanding invoices. Meanwhile, the revelation that Tesco knowingly delayed payments to suppliers in order to improve its own financial records, has only served to stir the pot further.
However, this is nothing new. Late payment has become the norm in the UK and across the EU for that matter and any measures taken to address it seem to have failed. Completely removing the risk of late payment is unlikely, but there are measures business owners can take to limit the chances of it happening.
Here are some simple steps you can take to reduce or cut the chances of it happening to your business and getting any outstanding fees cleared.
Winning a new client is very exciting for any business, especially if it’s a big chunk of business. However, before the celebrations begin, we always recommend carrying out some checks on the new customer to ensure they have the money to pay your invoices, and that they’re reliable payers. It doesnt take much time or cost and can save you a lot of headache and money down the road.
Some of the most common checks include credit reports, such as those offered by Experian, that give an indication of the company’s financial health. Other methods include face-to-face meetings and reference checks with their existing suppliers. Being on the ground and getting a feeling for the way they run business is invaluable, and speaking to existing and past suppliers can flag any potential issues before you’re tied-in.
Manage your receivables
Business owners who constantly ignore the aging of their receivables are creating a problem for themselves that could have dire consequences down the road. It is essential that receivables are managed efficiently to ensure the health of the company.
Past due accounts are a problem that can increase costs, especially if the business is using receivables as a form of leverage. Even if not, the impact on cash flow is in itself a costly issue. Be sure to issue your invoices when you should, and to remind clients when they are due.
Hire a credit manager
While on the surface hiring a dedicated credit manager may seem like another cost, the value they bring can quickly make up for it. As they are the ones doing the pre-delivery credit checks and then, if needed, any chasing for payments, credit managers provide a buffer between you the business owner and your customer, ensuring relationships are kept intact.
Where an invoice is overdue, a good credit manager can actually help strengthen your client relationships by working with them to find creative solutions to resolve their delinquency. By working with them rather than hounding for payment, they pave the way for a smoother future payment process and potential repeat business.
If the cost of hiring a full-time credit manager is beyond your budget, it’s worth looking into using a freelance credit manager. Since the downturn there’s been a significant rise in the number of people offering such a service. Just make sure they are a good fit with your company and industry.