Top 5 Tips To Get Paid On Time – Building An Effective Credit Control Process
14 December 2016
Late payments can be make or break for small and medium sized enterprises (SMEs) by greatly reducing the level of cash flow that they need to survive and grow.
recent statistics late payments have left small businesses out of pocket by £26 billion in the UK alone, with the average payment being made 72 days after the date an invoice was issued.
We’re going to talk you through the best tips to help you get paid on time and build an effective credit control process to make sure your business has the cash flow it needs to thrive.
1. Agree the price
As simple as it sounds this needs to be made clear before you begin working with your client. It’s natural to want to avoid confrontation that can sometimes come hand in hand with discussing price but if you don’t make this clear from the outset then it can lead to trouble further down the payment process. Always agree in writing the price for your products or services with your client and get them to sign a contract or send a written agreement to confirm this.
2. Research your client
The key thing to establish is the client’s likely ability to pay. There are several ways that this can be examined:
- For a small fee you can gain information from Companies House about the company and its director(s)
- Before signing the final contact you could ask your client for two trade references, which are companies that they have worked with in the past that you can contact to ask how long an account has been open, the credit or purchasing limit, and how many times the account has been paid late.
- If you are concerned about the clients ability to pay you could carry out a credit check from a reputable credit ratings agency
3. Always include and agree your terms and conditions
Clear payment terms and conditions should always be set out at the beginning of the relationship with your client. This is arguably one of the most important stages in your credit control process as it makes it easier to collect debts in future. Basic terms and conditions should include:
- Credit limits – Should be based on a sensible assessment of the prospective client’s requirements against their capacity to pay. Good clients will accept that you want to use credit reference facilities to aid in setting realistic credit levels and you should obtain their consent to do so. If that is not granted then proceed cautiously or not at all!
- A clause that outlines your right to charge interest on late payments. UK law dictates that clients must pay within a 30 day window (60 days for the private sector), after the client has been invoiced or has received services/products rendered, unless another payment date has been contractually prearranged.
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- A signature from your client to show acceptance of the terms
4. Plan your Credit Control
When compiling your invoice ensure all details on it are correct e.g. details of the client, description of products/services, price etc as this will stop any disputes or corrections getting in the way of payment. It is also worth keeping in mind that personalising your invoice to suit your client may help them process the payment faster, so talk to your client upfront and ask them what they would like to be covered in the invoice to suit their systems.
Try to send out your invoices as soon as possible after providing your product or service & at the very latest within a week. Always be sure you’ve addressed it to the correct person as again re-direction can delay payment.
In order to encourage payment on time it is important to speak to you client throughout the process, here is an example of how and when you should follow up your invoices if you have 30 day terms:
- Day 1 – Issue your invoice
- Day 14 – Make a courtesy call, using this opportunity to confirm receipt of the invoice, ensure there are no disputes and discuss the payment date.
- Day 28 – Call or email the client to confirm their payment intentions. Discuss your range of payment options with them as having a choice can make it easier for customers to pay
- Day 31 – As the payment is now overdue, call your client to check the status of the payment
- Day 37 – Send a letter to your client explaining that the invoice is now overdue and you will now be charging late payment interest
- Day 43 – Send a letter to your client to state that a debt collection agency will be instructed if the debt remains unpaid in seven days time.
5. Contact debt collection experts
If you have carried out the process above and your invoice still remains unpaid we recommend you outsource the issue to a debt collection agency such as ourselves to ensure you can use your valuable time to run your business while we help you boost your cash flow by pursuing the payments from your unpaid invoices.
The earlier you engage debt collection experts like Alex M Adamson the better the prospects of success.