Late payment is on the rise – but can be reduced significantly with these simple steps

14/09/2023

The problem of late payment is getting worse, with small and medium sized businesses now due an average of £27,214 in overdue invoices.

That’s according to new research from Intuit QuickBooks, which found more than half (52%) of SMEs agree they have been more affected by late payments in the last 12 months. Respondents reported that one in six (17%) invoices are now classed as overdue.

But encouragement can be found upon deeper analysis of the study, specifically the reasons why invoices haven’t been paid on time. The most common reason given for late payment was that the customer simply forgot to pay (23%).

By adopting a few simple steps as part of your credit control process, this excuse for late payment can be significantly reduced:

1. Call a few days before the invoice is due

It is good credit control practice to contact your customers a few days before your invoice is due for payment. This serves to remind them in case they have forgotten or misplaced your invoice. It can also push your invoice to the top of the pile as, if they are experiencing cash flow problems and have a number of invoices to pay, the fact you’ve shown you have a robust credit control process in place means they’ll be more likely to pay yours ahead of others, rather than run the risk of being chased for payment as soon as it’s overdue.

2. Call earlier in the credit period

It is also good practice to call a week or two after sending the invoice to your customer. Not only does it provide the opportunity for the customer to confirm receipt and mention any disputes which could affect payment, you can also use this call to confirm the due date of the invoice in case it has been lost or misplaced.

3. Automate credit control emails

Some platforms exist which enable you to automate this communication, reducing the resource burden on your team. Outsourcing to a specialist credit control agency can also be incredibly beneficial, both to improve performance and efficiency and to give you more time to focus on growing your business. Read more about the benefits of outsourced credit control here.

4. Call as soon as an invoice is overdue

Most important of all is to contact your customer as soon as an invoice is overdue. If they have genuinely forgotten to pay, this will prompt them to do so. If they have any issues, these can be discussed and addressed there and then and a way forward agreed.

Read: Credit control timeline: 8 steps to collect payment from customers

Knowing your customer

The second highest reason given for late payment was that the customer was unable to pay due to cash flow issues (20%).

This trend appears to be growing as rising interest rates and inflation, combined with the hangover of COVID, are placing a greater strain on businesses of all sizes. The Insolvency Service reported the number of company insolvencies in Q2 2023 was the highest since Q2 2009, and up 13% from Q2 2022.

Ensuring you’re only selling to creditworthy businesses is therefore paramount. Here are a few tips to help:

1. Credit check all new customers

Before deciding to sell to another business there are a few important questions you should be asking. Are they paying other suppliers on time? How are they performing financially? Do they have a good credit rating? Credit checks provide much of this information for a small cost, but one that is well worth the peace of mind. Any prospective customers with a poor credit history or rating should be viewed with caution, with either more attention dedicated to those accounts or potentially pro-forma payment requested.

2. Ask customers to complete an account opening form

It’s also important for customers to complete opening forms, which enable you to capture key information about the business. This ensures the company is bonafide, assists with your credit checks, and also provides the information you’ll need to contact them throughout the credit period and in the event they fail to pay on time.

3. Keep in touch with customers throughout the credit period

Contacting customers at key points in the credit period provides them with the opportunity to let you know of any cash flow issues they may be facing. Whilst enabling you to work together to agree a way forward, you’ll also gain the time to adjust your own cash flow projections in case their late payment will have an adverse impact on your company.

4. Act as soon as the invoice is overdue

As above, always act as soon as an invoice is classed as overdue. The likelihood of recovering an invoice in full reduces the longer it is overdue, and this is especially so with customers who are facing cash flow or financial difficulty.

Read: 8 questions you should be asking every customer

Adverse impacts

The importance of taking steps such as those outlined above are underlined by 42% saying late payment is having an adverse impact on their business. Of those:

• 26% have been unable to pay an invoice to another small business
• 26% have been unable to reinvest in the business
• 20% have been unable to achieve their business objectives

Meanwhile, of the 28% of business owners reporting late payment has had an impact on their personal life, 35% have been forced to dip into personal savings to keep the business afloat, while 28% have experienced poor mental health.

In total, 41% say there is a real risk of their business being forced to close in the next year if the same level of late payments continue.

If your business is being affected by late payment, Hilton-Baird Collection Services can help. Our award-winning range of debt collection and credit control services are designed to help our clients get paid faster, whilst easing the resource burden that credit control can have.

Click here to read about some of the ways we can help, or call us on 0800 9774848 or request a call back to discuss your requirements with our experienced team.