How to get paid on time: Tips from a debt collection agency
With pressures on UK businesses showing no signs of easing, getting paid on time is a crucial factor in maintaining a healthy cash flow. As debt recovery and credit control specialists, we understand the credit management challenges SMEs face, particularly in today’s tough trading climate.
Below we share valuable tips, insights and strategies to help you to secure more timely customer payments:
Know your customer
It sounds simple but don’t extend credit without ensuring you fully know who you are dealing with. Conduct thorough credit checks and “Know Your Customer” (KYC) procedures to ensure the customer has the financial capacity to meet their commitments. Whilst it can be tempting to focus on winning sales and boosting turnover, there is no benefit in trading with customers who won’t pay promptly or, in some cases, at all.
Monitoring creditworthiness is equally as important for existing customers, particularly in the current climate where a business’s financial health can change quickly.
Having a comprehensive picture of your customers will enable you to make informed decisions about how much credit to extend, whilst safeguarding your business.
Solid Terms and Conditions
Set out a sector-appropriate set of Terms & Conditions, allowing you to provide adequate protection to your business, whilst remaining competitive. Although your competitors may win work based on extended terms, we would caution against this unless you are sure of the creditworthiness of the customer in question and understand the potential impact of their delayed payment on your cash flow.
It is always preferable to trade with customers on your own Terms and Conditions. Setting solid terms of sale serves as a foundation for payment expectations. Ensure your customers fully understand your T&Cs before engaging in business. This clarity eliminates any potential late payment excuses later down the line and minimises disputes.
If your customer insists on trading on their T&Cs, it’s imperative to make sure you have fully understood the implications of these before providing goods or services.
Get the invoice right, every time!
Don’t let misunderstandings lead to payment delays. Making your invoicing crystal clear is fundamental to getting paid on time. We often see invoices that lack crucial details, giving the customer excuses to delay payment.
Ensure all relevant details are included such as the invoice due date, the methods of payment you will accept, including full bank details. Also, remind them of your T&Cs and your right to charge late payment interest. This helps to establish expectations from the outset, reducing the likelihood of disputes.
Likewise, ensure the invoice is addressed to the right person to expedite its arrival. Emailing your invoice helps with this as it is delivered directly to your contact’s inbox rather than getting ‘lost in the post’. Likewise, your customer might have a preferred way they wish to receive invoices (eg EDI link via your accounting package). Understanding what will trigger a payment at your customer’s accounts payable is important when creating and sending invoices.
Another key consideration is ensuring that references, such as PO numbers, are pulled through to the invoice so your customer can accept, process and make payment. Make sure your team understands that this information must be taken when the order is first placed, and ensure systems are set up to pull this reference through to invoicing.
Although individual customer invoicing requirements may vary, for the most part the template should be fairly uniform so that, if the work is put in up front, producing invoices will be straightforward and effective.
It’s time to break free from the stigma of asking for timely payments. In the UK, we often hesitate to request payments on time, but it’s an essential aspect of maintaining your business’s financial health. If you’ve delivered goods or services, don’t hesitate to remind your clients of their obligation to pay.
Likewise, customers tend to pay creditors who shout the loudest. If you demonstrate to your customers that you have strict policies in place, they are more likely to prioritise your payment ahead of their other suppliers.
Don’t be afraid to charge late payment interest
Late payment interest is a powerful tool to encourage timely payments. It is both your right and a statutory measure. Adding late payment interest to your invoices often leads to prompt payment, as it portrays professionalism and seriousness about your payment terms. If this is disclosed at the beginning of your relationship with your customer, there should be no reason for the customer to object to this if they decide to delay payment to you beyond terms.
Implement a welcome pack
At the beginning of your business relationship, provide a welcome pack that outlines your T&Cs, account opening forms, bank details and payment terms. Educate your clients from the outset, making it easier for them to prioritise timely payments as they have all the required information to hand.
Establish a credit policy
Create a written credit policy that is effectively communicated and understood throughout your business, from credit control to sales. Define credit limits, payment terms and consequences for non-compliance. Most importantly this policy needs to be stuck to. Give the relevant authority to enable the credit team to put customers that fall outside of the agreed parameters on stop. Aligning the credit policy and processes with the sales process will ensure the sales team are more focussed on working with customers with a propensity to pay promptly. Some businesses align their sales team’s incentives with timely customer payments to ensure a unified approach.
Offer early settlement discounts
Early settlement discounts essentially give your customers a financial incentive to pay your invoices earlier than they otherwise would. If you invoice on 30 day terms, for instance, you might offer a small discount to customers who pay within the first seven.
Whilst a tactic which, on the surface, reduces profit margins might not seem like it would be beneficial, the value to your business of receiving payment more quickly could outweigh the reduction.
There’s no hard and fast rule about how much to discount invoices by, whether it should apply to every invoice or how long you should give customers to take advantage. The key thing is to assess what’s suitable for your business.
Send invoices promptly after delivering goods or services. Avoid waiting until the end of the month to generate invoices, as this can lead to delays during payment runs, and you’re effectively giving additional credit to customers. Prompt invoicing increases your chances of receiving payments swiftly, particularly as many businesses still invoice at month end so your invoice would otherwise hit the customer at the same time as many other month-end invoices, as will any subsequent reminders.
Open communication and pre-due date check
Initiate open communication with your clients before the due date. Check if they’ve received your invoice, if payment is in progress and if there are any issues. This proactive approach will identify any potential disputes early on and minimise the likelihood of payment delays. It’s worth noting that your T&Cs should have a clause which states that disputes should be raised within a defined timeframe of receiving goods or services or they are not valid.
Listen to your customers
Effective communication is vital when payments are delayed. Whilst we have advocated taking a strict approach to late payment, it is worth engaging in a dialogue with your customer to understand the nature of the delay. Genuine reasons may include unforeseen circumstances, such as supply chain disruptions or economic challenges. However, inconsistent excuses or repeated delays may indicate a lack of commitment. Establish clear lines of communication, verify the reasons and be prepared to make decisions based on the information received.
Call in the professionals
If faced with persistent non-payment or your internal resources are being stretched, consider partnering with a reputable debt collection agency. Having robust T&Cs in place, copies of the invoices including details of late payment charges and proof of delivery will all help the debt collection agency to prove the debt is valid and needs to be paid.
It’s worth noting that escalating the recovery of overdue debts to a specialist agency early increases the likelihood of their recovery and demonstrates to the customer that you take late payment seriously. Find out more about when to consider using a debt collection agency.
When engaging a debt collection agency, you shouldn’t be required to pay big fees upfront. Typically they work on a no win, no fee basis so are incentivised to collect the overdue debt. Hilton-Baird Collection Services, for example, charges a small administration fee to load the debt then a percentage of what is recovered, depending on the age of the debt. Take a look at our fees in more detail.
Mastering timely payments requires a proactive approach and open communication. By implementing these strategies, you’ll not only enhance your financial stability but also foster a culture of punctual payments within your business and amongst your customers. The right strategies can make all the difference in securing your business’s success.
To discuss how Hilton-Baird can help at any stage of the credit control process, from the recovery of aged debt to a fully outsourced and confidential credit control service, contact our team on 0800 9774848 or request a call back.