At all times, especially these, it is important to keep the cash coming into your business. Whilst it’s great to send out invoices, it’s more important to make sure you actually get paid!
Over £225bn in late payments is owed to small and medium businesses (SMBs) in Britain and getting those overdue invoices paid can be slow, timeconsuming and a real drain on the productivity of your company.
Did you know that 49% of SMBs were cashflow negative on July 19? This means they were paying more cash out than they were receiving in. There are a number of things a business can do to manage its cashflow and getting a handle on old unpaid debts is a very good place to start.
The problem with late payments
The risk it becomes a bad debt. The longer it takes a client to pay, the higher the risk you won’t get paid at all and that you will have to write the debt off as a bad debt. You are funding this. When you issue credit to a client, which is what you are doing when you give them time to pay, it costs you money. It’s perhaps easiest to see this when you are borrowing money to keep your business going and are paying interest on that loan. You would not need to borrow as much if your clients all paid promptly so your interest cost would be reduced. Opportunity cost. You are missing out on having that cash in your own bank account. What would you do if the money was in your bank? Would you invest it in marketing? In some new equipment? In paying a bonus? Time and cost drain. It costs you time and money to manage the credit control function of your business. The time you could better spend on your business strategy, improving your client experience and developing new opportunities for your business, or even just time off so you can enjoy a few more hours each week outside of work.3 steps to take to get paid faster
At the core of good credit control is monitoring who owes you money, checking for invoices that have gone overdue, and asking for overdue invoices to be paid. Here are 3 easy steps to take to introduce better credit control to your business.1. Monitor your debtors
Track your debtors as part of your regular financial reporting. Just as you review your fees, your cash balances and profits regularly, we recommend you also review your aged debtor balances either monthly or weekly. For the debtor reports you review to be meaningful, your accounting records will need to be up-to-date and accurate which is why good bookkeeping is essential for your business.2. Ask them to pay!
It’s obvious but many businesses are not consistent at doing this! A gentle reminder is such an easy step to take and is usually fairly effective. If you get no response to your first reminder, polite persistence is key to getting paid on time. Chase overdue invoices regularly, we would recommend weekly. You can set this up to email reminders to run automatically from Xero so you don’t even need to get involved in the chasing.3. Have an escalation process
If a client doesn’t respond to reminders to pay, have a clearly laid out policy and process for escalation. When should the late payment chasing need to be escalated to a more senior member internally and externally? Do you charge interest for late payment? At what point do you stop working on their account? What action do you take to recover the debt if your chasing goes ignored?What to do about regular offenders?
When you have to spend a lot of time chasing up payment from a particular client it reduces your profit margin and potentially carries an increased risk of bad debt. It is worth considering the next steps for clients who are consistently late. Is it profitable to carry on working with them or do you need to adapt your terms for them, or even to walk away from the relationship?When might it be worth automating your credit control?
If you have many clients who often go outside their payment terms or where non-payments can become bad debts, consider implementing a dedicated debtor management tool like Chaser.What is Chaser?
Chaser is cloud credit control software that helps businesses carry out effective credit control efficiently but automating much of the process. It does this by connecting to your Xero account and automatically chasing customers to pay their unpaid invoices (if you are not already, take a read of our article on why you should be using Xero for your business). How is Chaser different from the automatic invoice reminders that can be done directly from Xero? Chaser brings the benefit of automation whilst keeping the human touch. Emails chasing payments that are clearly automated don’t feel like they have come from you or your team and can easily be ignored. Chaser overcomes this by:- The email templates can be tailored to suit your client.
- The emails reflect your regular email address and email signature so it appears that they were sent from a human.
- Where there is more than one outstanding invoice, the emails can automatically group the chasing of those invoices together in one email, as you would do if it were being done manually.
- You can set the timing that the chasers will be sent to ensure they are only sent after you know your bookkeeping will be up-to-date and also only sent during working hours.