Dealing with late payments is a difficult and stressful situation that many businesses find themselves in all too often. In fact, it’s suggested that SMEs spend around 1.5 hours a day chasing payments!
A recent study found that 8% of small businesses are at risk of closing this year due to late payments, particularly in the aftermath of the pandemic and increased costs. That’s around 440,000 businesses. The pandemic already claimed 400,000 businesses last year so the possibility of history repeating itself is very alarming.
Some hopeful news is that the government is looking to support and protect small businesses from late payments. And in this blog, we’ll outline how you can tackle overdue invoices and help mitigate the damages caused by late payments.
Dealing With Late Payments
Every business should have a process in place for dealing with late payments so that they can be handled as efficiently as possible. What works for some won’t work for others so have a think about what course of action will suit your business best. The most important thing is that you set a specific procedure – and stick to it.
Here’s an example late-payment process you can adapt to suit your business’s needs:
- Ensure that all information on the invoice is clear and accurate. This may seem trivial but mistakes or missing information (such as the order no etc.) on an invoice can contribute to the delay.
- As soon as the payment is overdue, make contact with the client. Decide if you’d prefer to do this via email or telephone, although a phone call is usually recommended. Be polite yet firm; check that they’ve received the email and ask if they had any queries, and then request that they settle the balance as soon as possible.
- If payment still hasn’t been settled (determine how many days you’re willing to leave it), make a follow-up call. Be firmer in your approach and explain that you’ll be taking further action if payment isn’t received by a certain date. You’ll usually find that this is enough to spur them on.
- If, after your previous attempts, you’re still awaiting payment, you’ll need to decide whether you do want to take further action and by what means. An article from The Federation of Small Businesses (FSB) gives a great insight into what you can do next, and they also offer debt recovery support.
If you have a repeat late-payment culprit, you might wish to consider if this client is really worth the trouble? If this is the case and you’re spending more time chasing payment than on the work itself, don’t be afraid to cut ties.
A Preventative Measure: Go Digital With Your Bookkeeping!
One way in which you can help prevent late payments from occurring is to use digital bookkeeping software. It automates and streamlines your accounting workflows, reduces errors and saves you so much time. You’ll be able to send out invoices quickly and efficiently and you’ll have greater visibility over your cash flow. What’s more, e-invoices make it so much easier for customers to pay you – by the click of a button – which helps ensure you’re paid on time. There’s usually also the option to set up automatic reminders to customers if their payment is overdue, so you don’t have to worry about manually chasing them up.
The deadline for Making Tax Digital (MTD) for all VAT-registered businesses is April 2022, so you really don’t have much time if you haven’t got on board yet! Luckily for you, we offer trials on our approved bookkeeping software (we’ve partnered with 5 providers) so you can find the perfect package for your business. Find out more here.
Reducing Your Business Costs
Late payments from clients wreak havoc on your cash flow. Pair this with the rising cost of, well, everything, and you can see why minimising spending has become a priority for many. If you’re struggling with cash-flow issues, talk to your bank immediately – they’ll be able to advise you on the best course of action and you might even be able to come to an arrangement.
Here are some tips you can use to help reduce your business costs:
Use technology to your advantage
The pandemic has shown us that digital software and processes can – and do – contribute to a company’s resilience. You can really use this technology to your advantage to help you save money. Some examples include: host your events online (it’ll save you money on venue, travel and catering costs), make the most of online tools (some of which are free, such as Google Docs) to streamline your processes, and use automated bookkeeping services.
Keep a cash-flow forecast, and update it constantly
Budget, budget, budget: it’s essential for any business. But using a working document is key. If you regularly review your cash-flow forecast and continuously update it, you’ll be in a much better position to react to any issues that arise, such as those pesky late payers.
Hint: Digital bookkeeping services can really help you with your cash-flow visibility!
Scrutinise your expenses
This may seem obvious, but really scrutinise your expenditure. Use comparison sites to reduce your insurance premiums or utility bills, cut out any non-essential spending and don’t be afraid to barter or negotiate with suppliers to get a better deal. It’s time to be ruthless!
Get savvy with your marketing
There are lots of ways you can market your business without paying a penny. Use Social Media to your advantage, spark your employees’ creativity and get them involved, or ask your customers to do your marketing for you! Customer reviews and recommendations tend to be more effective than traditional marketing. You could even offer your customers a reward for their recommendation – it’s a win-win situation for you both!
Say goodbye to paper
If you’re still knee-deep in paperwork, filing cabinets and desk clutter, we’re here to tell you that it’s time to go digital. There are so many programs and operations you can use to store all of your documents electronically, saving you paper and printing costs. Of course hard copies still have their purpose, but you’ll be surprised how much you can save by only printing when it’s essential.
Utilise your office space and remote working
The pandemic has made remote working much more accessible, and even as we head into a post-pandemic world, remote working is still hugely popular with both employees and employers. Even using a hybrid approach to remote working will save you money on office space and heating costs, and it also gives you the opportunity to utilise your office space more effectively. It’s definitely one to mull over.
Consider hiring freelancers
Hiring a freelancer, instead of employing a dedicated person, is becoming more and more common. It makes sense, especially if the desired task only takes a few hours here and there. A freelancer’s fees are likely to be higher than an employee’s wage but you’ll have no holiday pay, sick pay, tax etc. to contend with, saving you money in the long run.
Has your business been grappling with late-paying clients? If you have a success story for dealing with late payments or you have another great tip for reducing business costs, let us know!