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Managing late payments for SMEs

Date 11th January 2018 //
Author Sage
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Dealing with late payments can be a frustrating task for a busy SME or startup. On top of the various issues faced by small business on a daily basis, chasing payments can be time-consuming and could have a negative impact on cash flow.

Recent research conducted by Sage revealed the impact of administrative burden on more than 3,000 SMEs across 11 countries. The results showed that:

Thankfully, the fight against late payments is not unwinnable for smaller businesses and startups. In addition to the research, Sage has also provided some useful tips to help you conquer late payments, allowing you to save time and place more focus on making your business profitable.

10 tips for getting paid on time

1. Check the credit risk of new clients

It’s better to know if a new client has any credit problems prior to getting into business with them, rather than finding out months down the line. Sites like Experian and Creditsafe offer online tools, which can provide company credit checks and alert you if there are any potential issues.

2. Invoice accurately

If you make a mistake when invoicing, it’s easy for clients to find an excuse for delaying payment. Sending an accurate invoice helps to cover your back, so be sure to double check the details before sending.

3. Invoice immediately

Don’t delay after making a sale and don’t wait until the end of the month. This will help you avoid cash flow problems down the line.

4. State your payment terms clearly

Include your payment terms on every invoice and outline them verbally to any new clients. Due dates, acceptable methods of payment and late payment penalties are all key things to consider when creating invoices.

5. Offer a discount

Offering ‘prompt payment’ discounts of 1%-1.5% could encourage clients to pay faster, saving time in the long run.

6. Chase early

Don’t be shy about chasing a payment the day after it was due. If you set a consistent line of not allowing any leeway, clients will be more likely to pay on time.

7. Reiterate the facts

Make sure the client knows when the payment was due, the amount they owe and when you expect to be paid by.

8. Be assertive but personable

When communicating with clients, it is wise to strike a good balance between being assertive and maintaining a good relationship. If you let the client dictate the conversation, then you will struggle to prevent late payments. However, it is equally important to treat everyone with respect, as a calm and friendly approach is likely to help you receive your payment faster.

9. Claim interest

You have the right to claim interest on late payments and can claim compensation for the costs of debt recovery. Letting your client know about this may discourage them from making late payments.

10. If necessary, work with a debt collection agency

If you are struggling, you could employ a debt collection agency. This can save resource and send out a clear message that late payments will not be tolerated. It’s also important to note that these agencies will often claim a significant commission if the debt itself is large.

For more useful tips on managing your finances, have a look at Sage’s ultimate guide to basic business accounting.

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