How to speed up client payments
Previously we quantified the problem of late client payments which continues to be a massive problem for UK SMEs. This blog outlines some simple steps to mitigate the problem for your company. The key is to take action now, before it poses serious cashflow issues.
Clarify your payment terms
If you’re going to get paid on time, you need to be clear and up-front about it with your clients. It’s imperative that you include these in both contracts and invoices and that you highlight this to any new clients. The Cash & Treasury Management file reported earlier this year that approximately 27% of invoices were paid after the agreed terms. Presuming clients will pay on time just because its written in your contract is never a good idea. While it is an excellent first step, it is almost always one of many measures you will need to undertake to prevent late payments.
That is why we also recommend including statutory penalty interest mechanisms at the end of your invoices,. That way, your clients never miss the consequences of paying late. Furthermore, this sends a clear and professional signal to anyone you do business with.
Vary payment terms
Be smart about your payments terms and make sure to make any necessary adjustments along the way. For example, it is not unreasonable to shorten terms for professional services (7 days or immediate) or to ask for payment in advance, again especially for services.
Another good strategy is to agree on a 50% starting fee, followed by the second 50% of the payment upon completion or delivery. That way, you have a slight insurance policy, meaning you won’t need to dive into any spare funds to begin work.
If these contract stipulations seem somewhat stringent, you can always opt to reverse the process and incentivise clients to pay earlier. For example, you could offer a small discount if they do decide to pay in advance, which saves you any future cashflow headaches.
Get credit reference information
Some businesses and individuals are better at paying invoices on time than others. Luckily, there are various cheap internet sources available, like Credit Safe, Experian, and TransUnion. These websites check any companies and their payment records. They can also confirm whether there are any County Court Judgements against any of their directors.
We also recommend extra checks for any new, unknown, or problem clients. Doing this beforehand will give you all the necessary information to help you vary your payment terms accordingly.
Document your payment process
All this information needs to be documented and updated regularly. It’s important to keep a record of all meetings, emails and calls to ensure a consistent approach. Maintain pressure and do all you can to ensure the payment issue remains in your client’s thoughts. It often helps to keep separate lines of communication for commercial and finance contacts. This means you have extra opportunities to press your clients.
Lastly, make sure to implement pre-set escalating actions for late payments. If you invoice your clients on time and they fail to respond in a timely fashion, ensure you have the systems and processes in place to proceed accordingly.
We can help you get paid on time
Alpha Financials can help you set up the right systems and processes to guarantee you get paid on time. This, in turn, will reduce your debtor days, increase your cashflow, and send out the right message to your clients and suppliers. Get in touch with us today for more information or with any specific questions that pertain to your business.