Getting paid for your goods or services is an essential part of managing an SME, but it’s not always easy. Many small businesses have to deal with debtors who ask to pay late or simply ignore their invoices altogether. Late payments to small businesses hit a 2-year high in 2022 thanks to a wide range of factors, including rising living costs and stagnating wages
These financial challenges mean that many small businesses struggle when they’re faced with customers who make payments late. Payments made outside of the terms outlined in the invoice can cause cash flow issues, which makes it even harder for companies to pay their own bills.
Unfortunately, slow payments look set to continue in 2023, with the construction industry one of the first to highlight that payments are getting made later. Many other industries will probably find that their customers follow suit, as many individuals face challenging financial situations and other businesses deal with late payments also. That means that many more customers for both B2B and B2C companies could face cashflow problems and struggle to make prompt payments throughout the coming year.
As such, SMEs need to be proactive and find strategies to deal with late-paying debtors throughout the coming year and beyond. Hiring outsourced debt collectors can be a high cost that small businesses can’t afford, and they can mean that you end up losing money on your sales. As a result, SMEs throughout the corporate market need to work hard to get their invoices paid as promptly as possible themselves and with as little work as possible. While it’s impossible to get every invoice paid promptly, there are simple ways you can make the process more straightforward and improve your chances of success.
If you’re the owner of a small or medium-sized UK business and you want to find innovative ways to deal with debtors who don’t pay their invoices on time, keep reading. We’ve put together a practical guide to dealing with customers who won’t, or can’t, pay their invoices and how you can improve your cash flow in this difficult economic climate.
State Your Terms Clearly
Before you even make a sale, you should have a clear payment structure in place, which your sales and marketing teams can relay to your potential customers. You can outline the terms clearly, and ensure that everyone knows what they’re getting into before they make a purchase through your company. Make your payment terms clear in all paperwork you provide to your customers, including their invoices and sales agreements. With the terms stated clearly, any late payers won’t be able to hide behind ignorance. If customers regularly pay late for invoices, you could consider insisting upon payment before the product or service is provided or taking a deposit. You’ll then be able to confidently state that customers are breaking your terms if they pay their bills late and that you safeguard your future sales and invoices.
Send Invoices Promptly
If you’re expecting prompt payment from your customers, then you need to practice what you preach. That means that you need to send your invoices out promptly and give your customers plenty of time to make payments before the deadline. When you’re sending your invoices, you should consider offering multiple formats, such as printed letters, email invoices, and invoices kept on an online dashboard or app if your company has one. You can then ensure that your customers have the opportunity to see your invoice and have plenty of time to pay it in line with your terms. If you can, get a read receipt or some other form of confirmation that your customer has received your invoice so that you can rest assured that they have it and can start making plans to pay it.
Create An Open Dialogue
When customers miss a payment deadline, you need to be communicative and understanding initially. The cost-of-living crisis and rising inflation are affecting everyone, so some of your customers might be struggling to pay invoices for reasons that aren’t just greed or a lack of consideration for your business. So, it would help if you talked to your customers to find out what’s going on. Once you understand the situation, you can see if there are any ways that you can spread the cost of the service or product for your customers to make it easier for them to pay their invoices while also ensuring that your company gets paid in full eventually. If your customers are ignoring you, or making no plans to pay the money they owe to your company, then you can escalate the situation. By communicating with your customers, you can ensure that you make the right decision on future actions and that you create a plan that works for you and your debtors.
Consider Invoice Financing
One of the major downsides of having a lot of outstanding invoices is that it can cause serious problems for your company’s cash flow. Without the money you need, and that you expect from your sales, you might find that your company struggles to fulfil its own financial obligations. This situation can be devastating for your company and cause damage to your relationships with your suppliers, staff and other stakeholders. If your business is struggling to cope with cash flow problems, then invoice financing could be an ideal short-term solution. Invoice financing is where you use your SME’s unpaid invoices to secure funding, giving you quick access to the cash in return for a portion of the debt’s value when you repay the loan. Specialist brokers like Capalona can help you find the invoice finance solution to suit your company’s needs.
Offer Multiple Payment Options
Some customers might struggle to make payments if they can’t use their preferred method, so try to offer as many options as possible. If a particular payment option is more costly than another per transaction, consider passing this charge on to any customers who want to use these solutions. By offering a wide range of payment options, your business can improve its chances of getting paid promptly and show customers how easy it is to make payment for the goods and services they buy from your organisation. Make it clear what options your customers have for making payments when chasing for your invoices so that you can ensure that everyone knows how they can pay and can get their bills settled quickly.
Provide Discounts For Prompt Payments
One simple strategy to improve your chances of getting payments made early is to provide a discount for customers who pay their invoices within a set timeframe. The cost of this discount can be built into the price of your services or product offering, meaning that you won’t be out of pocket. By offering a discount for prompt payment, you can improve your chances of getting paid quickly and ensure that you get some compensation in the form of extra cash if your customers do choose to pay later than the stated payment deadline. Also, you can reward customers who pay promptly and give them more incentive to do so, which will improve your chances of getting paid on time, every time.
Use Several Forms Of Communication
When you’re chasing a late payment, you need to make sure that you vary your approach, particularly if you’re struggling to get a response. If you notice that a specific customer isn’t responding to emails, consider calling them or exploring other options, such as messaging them on social media or sending a message through their website. You can then ensure that you’ve covered all bases and that there isn’t any chance that the current email address or phone number is no longer in service or isn’t being accessed by those who pay invoices.
Automate The Invoice Management Procedure
Manually chasing invoices and reviewing details can be time-consuming, and forgetting to send reminders can be a major cause of late payments from customers. To save time and effort while ensuring that your invoices get sent and chased on time, you should consider using an automated invoice management tool. Each solution offers different features, and some are designed to support specific industries, so do your research and check out the best invoice management software on the market currently. You’ll then be able to find an option that suits your needs and allows you to streamline the process of sending out and managing your business’s unpaid invoices.
Customers who don’t pay their invoices promptly can cause serious problems for your SME. Late payments are considered the single biggest cause of failure for Scottish businesses, and many companies throughout the UK face the same issues. If you’re eager to avoid closing your business due to cash flow problems caused by late payments, then you need to do everything in your power to ensure that you get every invoice paid as promptly as possible. The tips listed in this article should help you to find innovative approaches to dealing with debtors who make late payments, so you can get your business back on track and feel more confident when making future sales.