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How to Minimise Late Payments

As a small or medium-sized business (SME) owner it’s essential that you’re paid on time by your customers, as having strong cash flow; payments coming into your business on a regular and timely basis; is absolutely essential to the success of your company, especially in the beginning.

Late payments are a natural part of doing business, but this doesn’t mean they can’t be minimised when you take consistent and appropriate steps to vet your clients and customers, provide them with multiple methods of payment, and, should it become necessary, apply interest charges to late payments.

With a recent YouGov poll approximating that 85 percent of all small or medium-sized businesses across Britain have had to deal with late non-payments by their clients and customers at some point, knowing how to minimise late payments will put you ahead of your competition in ensuring that every invoice you send out, gets paid.

1) Do Your Homework

The number one way of knowing whether a new client or customer is going to pay their invoices on time is by doing your homework by checking their credit ratings; much like companies that bill your business (or you personally) on a multi-part basis will check your credit rating ahead of time to provide them with historic assurance that you’re likely to pay their bills.

Unlike with larger companies, where the threat of being taken to court for not paying an invoice looms large, SME’s are historically taken advantage when it comes to late and non-payment. When you check a new client or customer’s credit rating ahead of doing business with them, you dramatically reduce this risk.

2) Provide Multiple Methods of Payment

Though this shouldn’t be necessary, if providing alternative payment methods to your current list increases the chances of a customer or client paying on time, it’s worth it (assuming a particular payment method doesn’t charge extortionately-high fees).

If your client tells you they’ve popped a cheque in the post (but it won’t arrive for several days), if they were late in sending out their cheque in the first place it’s within your right to ask them to pay you using a different method, with the more options you provide them reducing their excuses for not getting their payment to you as soon as possible.

3) Always Apply Interest to Late Payments

Of course sometimes, despite your best efforts to reduce such a scenario, a client or customer  will still hold out on paying you for as long as possible.

For this reason, you should consider adopting a policy whereby you always apply interest to late payments. British companies have a statutory right to charge interest on late payments, with this interest rate currently set at 8 percent. With that said, you should be wary of applying interest to late payments by your regular clients and customers (as well as newer customers spending a lot of money), as you’ll want to preserve a good relationship with them. Should late payment continue, however, you should look into sending a late-payment reminder letter, followed by a second reminder letter, followed by a final reminder letter detailing the interest they are about to be charged, and any legal proceedings and debt collection services you are intending to employ.

You’ll be glad to know that in addition to these top tips, managing your businesses cash flow has recently been made a whole lot easier with a ban on anti-invoice finance terms. Click the link to find out more.

Experienced SME Accountants

To speak with a professional accountant to discuss how we can help you keep track of any late and non-payments by your clients and customers, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

Alternatively, feel free to read our blog for industry information from the experts perspective.

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